Ancor and the Dangerous Games Investors Are Playing

Fried-Day:

Last year revisited: It feels so much like a year ago, when companies like Pillowtex (PTX Quote), CHS Electronics (HS Quote), Safeskin (SFSK Quote) and others were on fire and could do no wrong. Any question regarding the soundness of their biz would cause the Hostile React-O-Meter to spin out of control. Those names can now be replaced by the likes of Cree Research (CREE Quote), IDT (IDTC Quote) and Ancor Communications (ANCR Quote), where investors confuse momentum with fundamentals.

Ancor, a maker of fiber channel switches, is -- or until late yesterday -- was on fire. (Swinging from its open at 60 to 73 3/8, before closing at 54 7/8.) All sorts of message board chatter. All sorts of rumors. All kinds of stories, most of them surrounding the hype and hoopla that sales of switches to Sun Microsystems (SUNW Quote) will begin showing up this quarter. (Don't get me started on the danger of the boards!)

According to those rumors, at Comdex next week, Sun supposedly would roll out a new StorEdge product bearing the Ancor switch. However, before Dow Jones broke a story saying pretty much the same thing, a Sun spokeswoman late Thursday told my sidekick, Mark Martinez, that there will be "no" announcement regarding StorEdge and Ancor at Comdex. Furthermore, she said there would be no announcement regarding StorEdge and Ancor in the current, fourth fiscal quarter.

That prompted Martinez to ask: "Does that mean it may not be ready until Q2?" She said she wouldn't rule that out, but felt that there was no reason not to think that it would be sometime in the first quarter of next year.

Ancor Prez Cal Nelson, meanwhile, told Martinez that Ancor expects a "good quarter independent of the Sun relationship." He added, "And we expect to have a respectable quarter even if we don't have the Sun revenue." (That's what he said, really.) This is very important because analysts had been telling their clients to expect the Sun business to begin ramping up in the fourth quarter. That was based on comments by the company itself in its last earnings release.

Herb's Latest: Join the discussion on TSC Message Boards.

Meanwhile, another rumor (perpetuated by the message boards) is that Ancor is close to an OEM deal with Hewlett-Packard (HWP Quote). But, yesterday Dain Rauscher Wessels analyst Tom Erickson came out and said that it seemed doubtful Ancor would win the biz: "Although there has not been a public announcement of which SAN switch vendor has won the OEM relationship at Hewlett-Packard, we do not believe that Ancor, a Brocade (BRCD Quote) competitor, will be selected," Erickson said. Dain Rauscher Wessels was an underwriter for Brocade's IPO earlier this year. Erickson rates Brocade a strong buy and doesn't cover Ancor.

Looks like Fidelity, which an item here Thursday said was selling its Ancor stock, knew what it was doing. Such a strange time.

School daze, revisited: An item here Thursday questioned the way Edison Schools (EDSN Quote), which was in the process of going public, counted the number of schools it operated. Edison's IPO was Thursday -- priced at 18, it closed at 18 1/16 -- for much less than the company expected. (Keep an eye on this company; lots of short-sellers I know are! No doubt it will become a hit on the message boards.)

Foxhole follies: Looking forward to tangling with Rob Friedman of Mutual Series Funds on "TheStreet.com" on Fox News Channel this weekend. Rob is easy to like: extremely smart, congenial and his value investment style makes sense. But just to show that the smartest, friendliest and most sensible investors aren't always right: When he was on the show last time, back in July, one of his favorites was Bank One (ONE Quote). While Cramer grilled him about Bank One's Internet strategy, I asked about Bank One's credit card biz and the chance for delinquencies.

Rob's response: "They have the cleanest book of credit cards in the country. But at the Mutual Series Funds, we do deal in bankruptcies and distressed securities, and that could offer a huge opportunity in the world out there, not from Bank One, but from other credit card issuers, that have less quality to them." The rest, of course, is history as credit card problems caused Bank One to blow up. Rob, if you're listening, you know where my sights are set!