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daily01-13-00's DAILY BULLETIN

January 14, 2000

Market Data as of Close, 1/13/00:

o Dow Jones Industrial Average: 11,582.43 up 31.33, 0.27%

o Nasdaq Composite Index: 3,957.21 up 107.19, 2.78%

o S&P 500: 1,449.68 up 17.43, 1.22%

o TSC Internet: 1,097.95 up 66.38, 6.43%

o Russell 2000: 501.19 up 11.15, 2.28%

o 30-Year Treasury: 93 05/32 up 21/32, yield 6.639%

Companies in Today's Bulletin:

Intel (INTC:Nasdaq)

Microsoft (MSFT:Nasdaq)

In Today's Bulletin:

o Semiconductors: Intel Hits an Earnings Home Run -- but Did It Have a Tail Wind?
o Wrong! Tactics and Strategies: Unexpected Supply
o Evening Update: Greenspan Blasts Wealth Effect, Talks of Potential 'Bubble' in Speech
o Bond Focus: Bonds Rally, Despite Strong Retail Sales Data

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Semiconductors: Intel Hits an Earnings Home Run -- but Did It Have a Tail Wind?


Marcy Burstiner

Senior Writer

1/13/00 10:20 PM ETSAN FRANCISCO --


(INTC) - Get Intel Corporation Report

beat the Street's estimates for fourth-quarter earnings by a mile.

But the way the company did it has at least two analysts shaking their heads.

The chip goliath

reported earnings of 69 cents a share Thursday, 6 cents better than a 63-cent consensus from

First Call/Thomson Financial

. Sales for the quarter jumped 8% to $8.2 billion compared with $7.6 billion in the year-earlier period. Net income, excluding acquisition-related costs, was $2.4 billion, up 15% from $2.08 billion in the same quarter last year. After falling 3/16 during regular trading, Intel shares jumped 6% to 96 1/2 in the after-hours session.

Analysts Drew Peck from

SG Cowen

and Joe Osha from

Merrill Lynch

both said they were shocked to see that Intel's amortization costs and investment income were higher than what Intel led them to believe. Both wonder if the company is using discretionary accounting to beef up its income. Take away the extra amortization from acquisitions and the extra money made by selling stocks in an inflated market, and the company had an OK quarter. Neither firm is an underwriter of Intel.

"I think they met expectations," said

Merrill Lynch

analyst Joe Osha. "It's not accurate to say that 69 cents

a share reflects the operations of the company."

Intel reported as operating income the $508 million it realized in interest and sales of equity holdings. Osha said the company had led analysts to believe that that number would be around $200 million. The other area in question is amortization of goodwill from acquisitions, which was $241 million, up from the expected $185 million. Subtract out the difference of both, and you come much closer to 61.3 cents a share, or 2 cents less than the Street's consensus.

"They clearly made a conscious decision to boost

the numbers this quarter, and it is entirely discretionary," Osha says.

Osha refused to say that Intel was manipulating its numbers. But with the pace the company has been setting in acquisitions and equity investments, it clearly has the power to control when it will generate investment income simply by selling stock, he says. It can also control the timing and amounts of its write-offs in a given quarter.

"In effect Intel can say, 'What number do we need? We better start selling securities,'" says Peck. "They opened up a can of worms. The outlook of this company's earnings is now a function of the stock market. Intel is starting to look as out of whack as the rest of the market. But then again, why not?"

Factoring out the difference in amortization and income from stock sales, Peck also concluded that Intel would have missed the Street's estimate by 2 cents a share.

Both analysts have been cautionary on Intel. Peck has a neutral rating on the company. Osha

downgraded the stock from near-term buy to accumulate Nov. 12 and says now that he has no intention of changing that rating on either the fourth-quarter earnings or on management's bullish forecast for the first quarter. Neither Merrill nor Cowen are underwriters of Intel.

Intel spokesman Tom Waldrop said there is nothing unusual about a company including interest and other income in its earnings per share. He said the company fully disclosed where the income came from and was not trying to portray it as chip revenue or other operating income. "We guide analysts ahead of time how much income we think it will be, and then when we report the quarter we tell them how much it actually was.

"Did the sales of equities contribute to the 69 cents a share figure? Absolutely they did," Waldrop said. "We've had equities now for years, and from time to time we've been selling. The number is what it is and people know what it is."

Still, the analysts were surprised at the degree that the sales boosted the earnings. Peck, who maintains he's never seen Intel report operating income from equity sales, says, "It's becoming half a microprocessor company and half a hedge fund."

Wrong! Tactics and Strategies: Unexpected Supply


James J. Cramer

1/13/00 9:19 PM ET

When Net companies buy other Net companies with stock, the strangest thing happens: Sometimes the recipients can immediately dump the stock, inundating the market with supply nobody expected.

So, when

Digital Island



Sandpiper Networks

, the Sandpiper recipients can offload a ton of Digital Island.






, the recipients can blow out of a massive amount of E.piphany.

Take a look at those two stocks. Tell me that you can live with that amount of pain, that you can handle that level of discomfort as these insiders take their stock off the table.

If you can, I salute you. But if you can't, then you understand my predicament. I never wanted to sell any E.piphany, but I have to sell some if I am going to manage my risk.

All of my trading life I have had to understand the fundamentals first, the macro environment second, and the charts third. It has never been in my lexicon to have to know the insider-selling rules. They have never played this big a role in the stock market. Since the start of the new year, however, they are the dominant force on the



Now, however, it is ironic that the most material piece of information in this market is not earnings, or revenue, or guidance. It is float. Or, more accurately, the "moving float average." (I just made that up, but boy would it help to know the moving ratios of how much stock is outstanding over how much trades.)

Let's take



, which is my favorite example. One week the stock is at 59. Another week it is 19. What happened? Stock was released. Lots of it. Millions upon millions of shares. And it got the stuffing knocked out of it.

Let's think about the eToys situation. It really did have a pretty respectable Christmas, certainly a better one than

Toys R Us


. You have to admit that it has great brand recognition and that it has massive revenue for a young company. It has executed fairly flawlessly. It will be a winner in the dot-com retail world.

But a phenomenal amount of stock was free to trade, much more than any other dot-com, and the stock simply fell under its own weight. I also have no doubt that the selloff in



is similarly engendered by people who can sell who could not before.

Why do I take a pasting in Yahoo!? Because it has delivered flawlessly and has managed its growth fantastically, and because I don't think that all of the insiders are that anxious to sell, even up here. I could be wrong, but I am betting that the selling dries up in a matter of days, not weeks or months. I saw the same thing in


(MSFT) - Get Microsoft Corporation Report

. The amazing thing with Microsoft is how little insider-selling there was from the top honchos on the way up. They believed. They wanted to own. They even bought on dips. With the great companies, people aren't so eager to bail.

Join the discussion on


Message Boards.

This share issuance has become so important that I wish the


would make the companies spell it out much better. Instead of allowing it to be buried in filings, the SEC should mandate that any large amounts of stock that are for sale should be publicly disclosed. Right now only a handful of people know about some of these private sales. That's great for the sellers, but terrible for the buyers. In a world where the single most material piece of information is the size of the insider sale, you would think it would have to be made public at the time of sale.

Until it is, I have had to scale back our exposure to many of these highfliers. It is too difficult, too unknowable to trade them. They trade madly, unseasoned, as if they were small-caps. But they are billion-dollar companies.

One last example.



is a multibillion dollar company that went down 50 straight points on a lockup expiration. It then traded back 40 straight points after it ended.

But who knew other than the market makers that it ended?

Yet it was the single most importance piece of information you needed if you wanted to buy the stock

. Nothing else mattered.

It is time that the rules about insider-selling changed. There should be more notice and more knowledge. Until then, these unseasoned stocks can't be a big part of my portfolio. I just can't manage risk the way I have to if I am going to stay in the business of trading stocks.

Random musings

: To the dozens of people who thanked me for the

warning about not to trade on that first number with


(INTC) - Get Intel Corporation Report

and to the others who thanked me for suggesting that you might be able to buy it right after that number, I say you are welcome.

The number was reported incorrectly, the stock fell on heavy volume, and then the bullish guidance and real number surfaced and the stock tacked on a quick 10 points. Real money.

Which reminds me, those kinds of updates will only be available in

come the second quarter. Can you afford to miss them? And why not lock in the low subscriber price for RealMoney now rather than wait until the package costs $200? See more information in the

press release.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Yahoo!, Microsoft, Intel, E.Piphany, Tibco and Cramer owns stock in His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update: Greenspan Blasts Wealth Effect, Talks of Potential 'Bubble' in Speech


Eileen Kinsella

Staff Reporter

1/13/00 9:17 PM ET

The "huge" gain in equity prices has fostered a wealth effect that threatens to derail the long U.S. expansion,



Alan Greenspan

said tonight in a sharply worded


A key passage:

Productivity-driven supply growth has, by raising long-term profit expectations, engendered a huge gain in equity prices. Through the so-called "wealth effect," these gains have tended to foster increases in aggregate demand beyond the increases in supply. It is this imbalance between growth of supply and growth of demand that contains the potential seeds of rising inflationary and financial pressures that could undermine the current expansion.

Talk about Greenspan's speech on


Message Boards.

Greenspan also said that while observers in 2010 "may conceivably" conclude that today's U.S. economy "was experiencing a once-in-a-century acceleration of innovation," they "might well conclude that a good deal of what we are currently experiencing was just one of the many euphoric speculative bubbles that have dotted human history."

The chairman said the Fed supports the recent rise in market interest rates, as it is "intent on defusing the imbalances that would undermine the expansion." That virtually confirms that the

Federal Open Market Committee

will hike rates by 25 basis points Feb. 2, and hints strongly that a bigger hike is on the table.

Greenspan's remarks were having little effect in the thin evening


futures session, with the

S&P 500

futures up 1.4 to 1459.9 and the

Nasdaq 100

futures up 12.5 to 3665.

wrote about the Fed's growing concern over the wealth effect in a

story earlier today.


John J. Edwards III

Chip giant


(INTC) - Get Intel Corporation Report

posted fourth-quarter earnings of 69 cents a share,

beating the 31-analyst estimate of 63 cents and the year-ago 60 cents. The company cited stronger-than expected demand in what is typically the PC industry's biggest quarter. Fourth-quarter revenue rose to a record $8.2 billion, up 8 percent from a year ago.

Intel said it sees first-quarter revenues slightly lower than fourth quarter levels, citing seasonal factors. The company also said it expects 2000 research and development spending to total about $3.8 billion.

For more on Intel's earnings, see additional

coverage from the

joint newsroom.


(MSFT) - Get Microsoft Corporation Report

announced that co-founder and Chairman

Bill Gates

will relinquish his position as CEO and add the newly created title of chief software architect. The company said longtime No. 2

Steve Ballmer

, the software giant's president, will succeed Gates as CEO.

For more on the latest moves at Microsoft, check out a separate

story from the

joint newsroom.

Inflows to equity funds totaled $7.9 billion for the week ended yesterday, according to

AMG Data Services

. Large-cap equity index funds reported inflows of $427 million, their largest inflow since last February. International equity funds reported inflows to all regions. Taxable bond funds reported outflows from all sectors, totaling $1.9 billion.

In other postclose news (

earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified


Earnings/revenue reports and previews



posted fourth-quarter pro forma earnings of 6 cents a share, which the company said excludes goodwill and amortization and reflects a 2-for-1 stock split on Dec. 3. On an actual basis the company reported earnings of 4 cents a share, up from the year-ago earnings of two cents. The two-analyst estimate called for earnings of 4 cents.


(AVX) - Get AVX Corporation Report

posted third-quarter earnings of 48 cents a share including a gain of 2, compared with the year-ago earnings of 7 cents. The five-analyst estimate was for 35 cents.



posted fourth-quarter earnings of 44 cents a share, beating the 23-analyst estimate by a penny, and the year-ago earnings of 27 cents. The company said sales for its Avonex multiple sclerosis drug rose to $621 million in 1999 from $395 million in 1998. Biogen said it sees considerable growth potential left in the drug and that it plans to invest about $300 million in research and development in 2000.

For additional coverage of Biogen's

earnings, check out a separate story from the

joint newsroom.

Broadbase Software


posted a fourth-quarter loss of 17 cents a share, narrower than the four-analyst estimate of a 24 cent loss and the year-ago loss of 28 cents. The company said it plans to split its stock 2-for-1.

Catalina Marketing


posted third-quarter earnings of 86 cents a share, beating the eight-analyst estimate of 84 cents and the year-ago earnings of 64 cents.

Dallas Semiconductor

(DS) - Get Drive Shack Inc. Report

posted fourth-quarter earnings of 62 cents a share, beating the seven-analyst estimate of 60 cents and the year-ago earnings of 48 cents

H.B. Fuller


posted fourth-quarter earnings of $1.34 a share, well above the five-analyst estimate of $1.14 and the year-ago earnings of 84 cents.

Kaiser Aluminum


said it will report a $13 million pre-tax charge for its fourth-quarter earnings. The after-tax charge of 11 cents a share reflects market-to-market adjustments on certain aluminum hedging contract positions.

Microchip Technology

(MCHP) - Get Microchip Technology Incorporated Report

posted third-quarter earnings of 49 cents a share, beating the 12-analyst estimate of 47 cents and the year-ago 34 cents.

Silknet Software

(SILK) - Get Silk Road Medical Inc. Report

posted a second-quarter loss of 20 cents, narrower than the eight-analyst expected loss of 27 cents and the year-ago loss of 41 cents.



Internet unit,, which intends to have an IPO sometime this year, could lose as much as $75 million as it increases costs from marketing, technology and hiring more staff to join its current 130 employees.

US Airways

(U) - Get Unity Software Inc. Report

said it will take a $64 million pretax charge in the fourth-quarter for planned retirement of some of its aircraft.

Visual Networks


posted fourth-quarter pro forma earnings of 15 cents a share, beating the nine-analyst estimate of 13 cents and the year-ago earnings of 3 cents. The company said the figures assume an effective income tax rate of 32%.

Mergers, acquisitions and joint ventures

American Home Products


said it continued to stand behind its merger pact with



, the terms of which it said remain in full force and effect. The statement came after Warner announced earlier in the day that it was prepared to talk with unfriendly suitor


(PFE) - Get Pfizer Inc. Report


For more on the newest round of merger talks, check out an earlier

story from

joint newsroom.


(BA) - Get The Boeing Company Report

said it would buy the space and communications business of

Hughes Electronics


for $3.75 billion. The deal boosts Boeing's satellite-based revenues by 35% and will open new business opportunities in government programs and air traffic control.

Hughes Electronics owner

General Motors

(GM) - Get General Motors Company Report

said it would realize a pretax gain of about $2.2 billion from the sale, though the specific amount will be determined later.

Rainforest Cafe


said a public company made an unsolicited bid to buy it for $125 million in cash and stock. In December, Rainforest said it signed a $111 million merger agreement with

Lakes Gaming


, where each share of common stock held by Rainforest shareholders would be exchanged tax-free for 0.55 of a share of Lakes common stock.

Offerings and stock actions

ADC Telecommunications

(ADCT) - Get ADC Therapeutics SA Report

set a 2-for-1 stock split.

FactSet Research Systems

(FDS) - Get FactSet Research Systems Inc. Report

set a 2-for-1 stock split.

Mercury Interactive


said it plans to split its stock 2-for-1 on or about Feb. 11.


Liberty Financial

(L) - Get Loews Corporation Report

said Kenneth Leibler unexpectedly resigned as president and CEO. Liberty said Chairman Gary Countryman will take on the role of president and CEO of Liberty Financial on an interim basis.

Western Digital

(WDC) - Get Western Digital Corporation Report

said it named Matthew Massengill as CEO and Thomas Pardun as chairman. Chuck Hagerty has resigned as president and CEO and will retire as chairman, the company said.

Bond Focus: Bonds Rally, Despite Strong Retail Sales Data


David A. Gaffen

Staff Reporter

1/13/00 4:52 PM ET

It took some doing, but the market finally found a way to rally after four straight declines. Between investors picking their spots and dealers covering short positions, the market regained some of this week's lost ground, and yields bounced off 30-month highs.

In doing so, the market was also able to shrug off an impressive

retail sales

report and the in-line

Producer Price Index


Core retail sales (excluding auto sales) rose 1.4% in December, the largest increase in three-and-a-half years. But the market's habit has been to pre-empt economic news by freaking out a day early and relaxing only when whatever it's imagined the worst-case scenario doesn't pan out (perhaps the

Census Bureau

announcing the increases while flogging traders with flaming whips).

"You can take the consensus estimate of economists, and you might as well throw it out the window," said Brian Jones, economist at

Salomon Smith Barney

. "The market gets beared up going into the releases. You'd think the bond market would be lower, but it's like, 'ready, shoot, aim' with the bond market."

The market: Join the discussion on


Message Boards.

For what it's worth, economists were expecting a 0.7% increase in core retail sales. Overall, retail sales rose 1.2%, compared with economists' expectations for a 1% increase. The PPI, the market's top indicator of wholesale inflation, rose 0.3% in December, while the core PPI rate, which excludes food and energy prices, rose 0.1%. Both readings were in line with


consensus forecasts.

The benchmark 30-year Treasury bond, which rose tentatively in the morning, built on that rally in the afternoon and was lately trading up 23/32 to 93 5/32. The yield declined 5 basis points to 6.66%.

"I view it all as pretty technical and unrelated to economic news," said Dana Johnson, senior managing director at

Banc One Capital Markets


With the market expecting a relatively benign

Consumer Price Index

tomorrow, today's bounce was an acknowledgement that the market had perhaps done too much selling. The 30-year Treasury bond's yield had risen more than 20 basis points in just eight days of trading.

More important than the CPI,

Federal Reserve


Alan Greenspan

has a potentially important speech tonight at the

New York Economic Club

. The chairman, who hasn't delivered a major policy address since October, will speak on technology and the economy, which affords him a lot of latitude to warn the markets about what he views as threatening to economic stability.

While traders don't want to have a long position ahead of the speech, just in case Greenspan hits everyone on the head, they're avoiding a short position, too -- lest Greenspan give a relatively friendly speech. The latter possibility seems unlikely, but sources said they're not taking that risk.

"With Greenspan, you don't know," said Maryann Hurley, vice president in trading at

D.A. Davidson

in Seattle. "We've priced an incredible amount of bad news into the market ... so we have position squaring before Greenspan."

With the market already expecting a 25-basis-point rate hike at the Feb. 1-2 Fed meeting, the market will be looking for a hawkish speech out of the Fed chair, something that would indicate that the Fed is gunning for a 50-basis point increase. The monetary policy committee hasn't raised rates by 50 basis points in almost five years, and right now the

fed funds futures

traded on the

Chicago Board of Trade

are factoring in a 31% chance of such a hike.

Jones said today's retail sales report makes a 50-basis point increase more likely. On a year-over-year basis, retail sales rose at a 10.3% rate, faster than the 7% pace in December 1998. Total retail sales in 1999 were 8.9% higher than in 1998, the greatest annual gain in 15 years. The Fed's tough-talking stance has focused on the pace of consumer demand and on the inflation it may cause if left unchecked, despite currently benign consumer inflation.

Economists have discussed the benefits of Greenspan's gentle approach to monetary policy over the last few years, recognizing that improved productivity can allow for a lower unemployment rate without causing wage or price inflation. Judging by recent speeches, however, Fed officials seem less likely to allow this experiment to continue, with the current 4.1% unemployment rate the lowest its been in 30 years.

Even Fed officials that support a less restrictive policy, such as

Philadelphia Fed


Ed Boehne

, have sounded more worried in recent weeks about the pace of demand. The one caveat is this: sometimes Greenspan likes to sound a contrary tone from the rest of his Fed colleagues after they've been collectively making the market nervous with alarming statements.


Street Sightings

Herb Greenberg will be appearing on the following shows on Fox News Channel, Friday, Jan. 14, at 7 a.m. ET on "Fox and Friends."

James J. Cramer will be appearing on the following shows on Fox News Channel, Friday, Jan. 14, at 5 p.m. ET on "Your World with Neil Cavuto" and at 7 p.m. ET on "Fox Report with Shepard Smith."

Chat with John J. Edwards III on AOL's MarketTalk, Monday, Jan. 17 at 3:30 p.m. EST. MarketTalk is hosted by Sage Online.

Copyright 2000,