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TheStreet.com's DAILY BULLETIN

January 20, 2000

http://www.thestreet.com

Market Data as of Close, 1/19/00:

o Dow Jones Industrial Average: 11,489.36 down 71.36, -0.62%

o Nasdaq Composite Index: 4,151.29 up 20.48, 0.50%

o S&P 500: 1,455.90 up 0.76, 0.05%

o TSC Internet: 1,132.19 up 13.97, 1.25%

o Russell 2000: 520.02 up 6.56, 1.28%

o 30-Year Treasury: 92 11/32 up 11/32, yield 6.716%

Companies in Today's Bulletin:Microsoft (MSFT:Nasdaq)

Intel (INTC:Nasdaq)

America Online (AOL:NYSE)

IBM (IBM:NYSE)

In Today's Bulletin:

o Internet: Venture Cap Activity Blurs Tech Firms' True Earnings
o Wrong! Rear Echelon Revelations: What Can Europe Tell Us About U.S. Stocks?
o Evening Update: AOL, IBM and AMD Score a Hat Trick With Earnings; Besting Estimates
o Bond Focus: Bonds Bounce, Then Stagnate; Fed Decides More Is More

Also on TheStreet.com:

Economic News: Fed Drops Its So-Called Interest-Rate Bias

Fed said it is opting to more broadly identify its outlook for inflation

http://www.thestreet.com/brknews/econ/865073.html

Market Roundup: Nasdaq and Russell Set New Highs but Earnings Drive This Bus

It's hard to take too much out of this market's swings with everyone waiting for IBM, AOL and Apple to report.

http://www.thestreet.com/markets/marketroundup/864975.html

Tech Savvy: Transmeta Pulls Open the Curtain and...

The supersecret company's new chips are out of the bag.

http://www.thestreet.com/comment/techsavvy/865012.html

Brokerages/Wall Street: Zacks Zapped by Y2K Glitch

A tech snafu keeps 2000 updates off the Web.

http://www.thestreet.com/stocks/brokerages/864911.html

Internet: Venture Cap Activity Blurs Tech Firms' True Earnings

By

Tracy Byrnes and

Beth Kwon

Staff Reporters

1/19/00 7:46 PM ET

Earnings season was complicated enough even when companies were just companies.

But now that big tech companies are doubling as venture capitalists, deciphering corporate earnings reports has become doubly trying. In the last two weeks, jumps in investment income have bolstered results at

Microsoft

(MSFT) - Get Report

and fellow tech giant

Intel

(INTC) - Get Report

, helping both companies to handily beat Wall Street estimates. Yet investors reacted quite differently, with Microsoft slipping 7% Wednesday and Intel jumping more than 10% last Friday in the wake of its report.

The diverging reactions point up an issue that's on investors' minds more and more these days, following last year's tech run-up and the hot IPO market that opened the floodgates to tiny tech players. Do gains in investment income at the big tech firms simply reflect the companies' investing efforts, or do they serve to distract investors from core operating performance measures?

Gravy Boat

With big tech players investing in all manner of start-ups as a simple matter of strategy, equity arms and venture capital divisions are becoming commonplace. And, with the booming stock market, especially in tech, those investments are starting to pay off in a big way. "It's happening all over the place," says John Puricelli, a software analyst with

A.G. Edwards

, which has an accumulate rating on Microsoft and hasn't done underwriting for the company. "It's just part of the new paradigm that we analysts have to deal with."

For instance, Intel has an investment portfolio worth some $8 billion, spread over 350 companies, making the chipmaker a major player in the Silicon Valley venture capital world. Even a company as seemingly mundane as disk-drive maker

Seagate

(SEG)

has been richly

rewarded for its VC efforts. For its part, Microsoft "invests in companies that help accelerate the development of technology they can put in the hands of customers," spokeswoman Caroline Boren says.

Investments in start-ups give companies like Microsoft and Intel access to new technology and possible competition. "In the tech industry, research and development is the lifeblood of a successful company," says Charles Boucher, a semiconductor analyst with

Bear Stearns

. "If you don't invest, you ultimately stagnate and perish. It's a very effective way to use cash or stock currency to strengthen the company and ultimately benefit shareholders." (Bear Stearns has a buy rating on Intel and hasn't done underwriting for it.)

Further, to the likes of these big-cap tech giants, investment gains are "kind of like gravy," Puricelli concludes. Jeff Van Harte, senior portfolio manager and vice president of

Transamerica Investment Services

, points out that Microsoft's bulging $19.8 billion investment portfolio represents just a sliver of its $553 billion market cap. Van Harte's firm holds Microsoft and Intel shares.

The Meat

But that said, investors don't want to see noncore income distracting them from the meat of corporate earnings reports: revenue and earnings growth from core operations. Those figures, according to standard Wall Street thinking, convey how the core business has performed over a specified period. Investment income, on the other hand, is more akin to supplementary income, like that from the disposition of assets; it doesn't show how a business is doing.

Explaining the stock's midweek swoon, Bill Epifanio, enterprise software analyst with

J.P. Morgan

, says Microsoft "didn't beat the Street with revenues, they beat it with other stuff, and that's not as good." (J.P. Morgan has a buy rating on Microsoft but hasn't performed underwriting for it.) Of Intel, Boucher says, "Between 5 and 6 cents a share is essentially from gains on investments, which is what people failed to note the day after," when the stock jumped 12 points.

Microsoft says its investment decisions are based first on strategic considerations, then on the financial outcomes. Robert Manetta, Intel's spokeman, says of his company's investment efforts, "The portfolio has gotten so big and is very important to strategic growth, so we felt it was important to detail for investors."

That's not to say there's anything wrong with including investment income on the bottom line. "Nothing in my experience has shown that the inclusion of investment income in earnings should make you suspicious," notes Mike Young, a securities law and financial reporting partner at

Willkie Farr & Gallagher

and author of

Accounting Irregularities and Financial Fraud

.

Some skeptics point out that if the core business isn't going to meet earnings expectations, a company could just sell a portfolio holding, recognize a gain and boost earnings. Others just call that good business. "Companies are always free to undertake business transactions to increase income," says Young. "Some would argue that's what you're supposed to do."

Wrong! Rear Echelon Revelations: What Can Europe Tell Us About U.S. Stocks?

By

James J. Cramer

1/19/00 8:09 PM ET

Europe

could be an important tell tonight. Europe has been the source of much of the selling worldwide. It also has cast a pall every morning over our own markets.

The sell-off at the beginning of the year started in Europe and this

Dow

sell-off got started over there, too. But now, as I leave, I see the early line on tech in Europe is indicating upward.

Cramer's Latest: Join the discussion on

TSC

message boards.If we are going to get a rally in the

SPX

, we are first going to have to see signs of it over there.

Remember your bear case here. If we are just going to have a repeat of the four horsemen,

Cisco

(CSCO) - Get Report

,

Sun Microsystems

(SUNW) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

, plus a smattering of

PMC-Sierras

(PMCS)

,

Broadcoms

(BRCM)

and the like, we are going to lose a lot of managers to the sidelines. They can't keep playing in the same old same old game because they have no ground or rationale for staying long up here.

However, if the market could broaden and include some companies with multiples that are in the single digits on next year's earnings, then we could see a full-fledged rally come in instead of this herky-jerky stuff of year 2000.

Right now all of the important markets in Europe are in the red. Many of the U.S. stocks have continued in the funk that started in 1998 and continued in 1999, particularly the financials. The cyclicals and some tech have also gotten hampered by Y2K concerns.

If Europe turns, we might see that broadening happen. Why does this matter so much to me?

Well, hark back a few weeks ago on our

TV show when

Ralph Bloch

from

Raymond James

talked about how if the market didn't broaden out in three or four weeks, he would begin to believe that the flashing yellows would turn red.

Ralph, to me, represents the common-sense version of the market, in other words, that he wants to see less craziness and more inclusion and an end to the parabolic moves of some tech stocks.

So far this year we have seen an end to the parabolic moves, but not the broadening that Bloch points out correctly we have to have if the market can be deemed healthy for big investment. If this market is going to get broader, it pretty much has to happen now, after these critical earnings.

Which is why I am setting the alarm for a real early time to see if my hunch will begin to play out that the real strength of this market starts coming through tonight in Europe and continues around the globe to the U.S.

********

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco Systems, Intel, Microsoft and Sun Microsystems. Cramer's fund also may be long or short certain stocks in his B2B rotisserie league or TheStreet.com New Tech 30 index. 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

jjcletters@thestreet.com.

Evening Update: AOL, IBM and AMD Score a Hat Trick With Earnings; Besting Estimates

By

Tara Murphy

Staff Reporter

1/19/00 9:06 PM ETAh, earnings season. When a young company's fancies often turn to creative accounting. Tonight, though, participants were waiting in the wings for some of the stock market's frothiest names to post their earnings.

And post they did. And for most of them, things are looking pretty good. We'll see how good, when the market opens tomorrow, but some of the names got off to a running start tonight in after-hours action. For a wrap-up of some of tonight's action, take a look at a copy of

TSC's

The Night Watch.

IBM

(IBM) - Get Report

posted fourth-quarter earnings of $1.12 a share, ahead of the

First Call/Thomson Financial

24-analyst estimate of $1.06, but down from the year-ago $1.24.

IBM said fourth-quarter net income was $2.1 billion, down from the year-ago $2.3 billion.

Big Blue's chairman and CEO,

Louis V. Gerstner, Jr.

, said in a statement:

As we had anticipated, the Y2K issue hit us hard in the fourth quarter. Many of our large customers -- who handle much of the world's critical data -- had locked down their computer systems as they prepared for the Y2K transition. While we are pleased that this transition is proceeding smoothly for our customers, these lockdowns had a significant negative impact on our revenues and earnings in the quarter.

America Online

(AOL)

posted second-quarter earnings of 9 cents a share, a penny better than the 32-analyst estimate and up from the year-ago 4-cent profit, which has been adjusted two reflect two stock splits. The Internet giant said the online shopping and advertising boom pushed revenue up 41%, to $1.6 billion, while subscribers to its flagship service reached 20.5 million, a 1.8 million increase from the first quarter. On Jan.10, AOL said it had entered a $144 billion deal to buy

Time Warner

(TWX)

.

In other post-close news (earnings estimates from

First Call/Thomson Financial

; earnings reported on a diluted basis unless otherwise specified):

Mergers, acquisitions and joint ventures

Suez Lyonnaise de Eaux Group's

energy division

ELYO

said it has agreed to purchase all the outstanding shares of

Trigen Energy

(TGN)

that it does not already own, in a cash deal valued at $23.50 a share.

Currently, ELYO's subsidiary holds roughly a 53% interest in Trigen common shares. Trigen also said that it has tapped its director and COO Richard Kessel to become president and CEO of the company. Trigen will maintain its name and company headquarters in White Plains, N.Y.

JDS Uniphase

(JDSU)

said

Lucent

(LU)

has extended their agreement, which calls JDS Uniphase to provide advanced optical amplifier modules for Lucent's

WaveStar OLS 400G

optical networking systems through December 2001.

Earnings/revenue reports

Advanced Micro Devices

(AMD) - Get Report

reported fourth-quarter earnings which includes restructuring and other charges of 43 cents share. The report was up from the year-ago 15 cents a share. The 20-analyst estimate, which does not include charges, was for a penny.

Apple

(AAPL) - Get Report

posted fiscal first-quarter earnings, excluding items, of $1.00 a share, well ahead of the 21-anlalyst estimate of 90 cents and up from the year-ago 95 cents.

Conexant

(CNXT) - Get Report

posted first-quarter earnings of 24 cents a share, edging out the 14-analyst estimate of 20 cents and the year-ago pro forma loss of 30 cents. The company also said it would purchase

Oak Technology's

(OAKT)

broadband division for $25 million.

Separately, Oak Technology posted a second-quarter loss of 34 cents a share, wider than the single-analyst estimate of a 28-cent loss and the year-ago 22 cent-loss.

Concur Technologies

(CNQR)

reported a first-quarter loss of 76 cents a share, wider than the four-analyst expected loss of 72 cents and the year-ago pro forma loss of 48 cents.

Digital Microwave

(DMIC)

reported third-quarter earnings of 5 cents a share, a penny better than the 11-analyst estimate and up from the year-ago loss of $1.09 including a charge.

Extreme Networks

(EXTR) - Get Report

reported second-quarter earnings of 11 cents, beating the seven-analyst estimate of 9 cents a share, and the year-ago pro forma loss of 5 cents.

GaSonics

(GSNX)

reported first-quarter earnings of 9 cents a share, beating the four-analyst estimate of 7 cents and the year-ago loss of 49 cents which includes a charge.

I2 Technologies

(ITWO)

posted fourth-quarter earnings of 19 cents a share, beating the 22-analyst estimate of 16 cents and up from the year-ago 5-cent profit. Separately, the company set a 2-for-1 stock split.

Legato Systems

(LGTO)

posted fourth-quarter earnings of 11 cents a share, up from the year-ago 8 cents. The 19-analyst estimate, which excluded goodwill, was 19 cents a share.

Micromuse

(MUSE)

posted pro forma first-quarter earnings of 13 cents a share, which excludes the write-off of purchased in process R&D and the amortization of goodwill and purchased intangible assets, a penny ahead of the 10-analyst estimate and up from the year-ago 8 cents. The company also said its board approved a 2-for-1 stock split.

MMC Networks

(MMCN)

reported a fourth-quarter loss of one cent a share including items. The 11-analyst estimate called for a loss of one cent while the year-ago earnings were 9 cents a share.

QLogic

(QLGC)

posted third-quarter earnings of 40 cents a share, beating the seven-analyst estimate of 36 cents a share and the year-ago 19-cent profit. Separately, the company set a 2-for-1 stock split.

Superior Industries

(SUP) - Get Report

said it sees fourth-quarter earnings 17% above expectations citing strong auto sales and shifts to more lightweight vehicles. The company said it expects earnings of 81 cents, well above the seven-analyst estimate of 69 cents.

Symantec

(SYMC) - Get Report

posted third-quarter earnings before goodwill of 59 cents a share, up from the year-ago report of 43 cents. The six-analyst estimate was 50 cents, which included good will.

Universal Health Services

(UHS) - Get Report

said it expects to posts earnings of 55 cents a share, which includes roughly four cents from the reversal of previously accrued bonus cost. The 17-analyst estimate sees the company reporting fourth-quarter earnings of 42 cents a share. Universal said that its also sees fiscal 2000 earnings of roughly $2.52 a share, after the bonus expense reversal. The 16-analyst estimate expects the company to post 2000 earnings of $2.39 a share.

Western Digital

(WDC) - Get Report

said it was leaving the high-end hard drive business and cut its workforce by more than 420 jobs. The company, which is axing the business to focus on network servers and workstations, said that its would assume a restructuring charge in the third-quarter. The company also said that its seond-quarter loss is significantly narrower than the 10-analyst estimate of a 98-cent loss.

Offerings and stock actions

99 Cents Only Stores

(NDN)

set a 4-for-3 stock split payable on Feb.8 to shareholders of record Jan.28.

Miscellany

Harbinger

(HRBC)

said it has tapped its president and COO James Travers, to become its CEO. Travers replaced the company's founder and Chairman C. Tycho Howle, who stepped down from his positions to pursue other interests. Howle will continue to serve as an advisor to Travers.

Bond Focus: Bonds Bounce, Then Stagnate; Fed Decides More Is More

By

David A. Gaffen

Staff Reporter

1/19/00 5:32 PM ET

Treasuries took a positive bounce today, one

day after long-term yields rose to their highest levels in two-and-a-half years. Analysts ascribed nothing particularly special to today's bounce, other than a few buyers taking advantage of the higher yields, some technical support and an overall decent day for global bond markets.

Today's most significant news involved the Federal Reserve's change in how it discloses what it's thinking and when, but the market didn't react to that announcement. The Fed's going to attempt to be less confusing from now on, but whether that will work is another story.

Like many days of late, participants said the bulk of the action was concentrated in a flurry of activity in the early morning, followed by hours of drumming one's fingers on a desk. Despite already accounting for one, if not two, 25-basis-point rate hikes out of the

Federal Reserve

, investors still seem reluctant to buy in at these levels.

"People are just despondent with a market that goes down, day after day after day, and people viewed yields as attractive when they were 25 basis points

lower," said Mike McGlone, vice president in trading at

Aubrey G. Lanston

. "The day traders are in the market, but investor types are just nothing doing."

Volume reflects that. Tracker

GovPX

reported volume down 11% when compared to Wednesdays during the past month, but 22% lower than the average in the noon to 3 p.m. period. Lately the 30-year Treasury bond was up 13/32 to 92 14/32. The yield dropped 3 basis points to 6.72%.

Treasuries bounced higher in the morning due to a number of factors. The 30-year Treasury bond futures contract, traded on the

Chicago Board of Trade

, found buyers overnight at 89 3/32, a level technicians identified as support, which resulted in some buying this morning.

In addition, global bond markets, such as German Bunds and British Gilts, rallied today, lowering their yields, and made Treasuries look attractive by comparison. In addition, corporate supply had a positive effect on the market, including a $2 billion, 10-year note sold by the

Inter-American Development Bank

. Underwriters who had previously sold Treasuries as a hedge against this supply bought them back this morning.

However, after that initial push higher, the bond market froze in its tracks. That it didn't fall on its backside is encouraging, considering the recent trend. Sources said the stagnation reflects the fact that bonds have reached levels attractive enough for the selling to recede, but the market still has no motivation to engage in any voracious buying.

"I guess what the market is telling us is, we've adjusted nicely to the possibility of a 6% funds rate," said Jim Kochan, senior fixed income strategist at

Robert W. Baird

in Milwaukee. "Unless there's some more bad news, 6.75% on the bond is probably a resting spot. We can't rally much from here, and probably won't sell off."

The market, as evidenced by trading of

fed funds futures

on the

CBOT

, is already looking for a 25-basis-point hike in the funds rate to 5.75%, and is currently discounting a 20% chance of a hike to 6% at the Fed's next meeting on Feb. 1-2.

But news between now and then is limited: the most important release is the fourth-quarter

Employment Cost Index

, an important measure of wage costs. The market was hoping for a clue from the Fed's

Beige Book

, its anecdotal survey of economic conditions nationwide. This report has at times contained some helpful hints to what the Fed could be looking at, but this time the report has very little that the market would find surprising.

Economic growth remains strong, labor markets are tight, but "the tight labor markets did not seem to be matched with large wage increases," the report said. "Most consumer prices appear to be holding steady in much of the country, although a few Districts reported moderate increases," it added.

Lack of Bias

Goodbye, Federal Reserve policy bias. The

Federal Open Market Committee

released its new guidelines on what it will disclose following Fed meetings, an attempt at cutting down on the confusion that ensued in the markets after several meetings last year.

However, the way they've worded it, the new policy might be just as confusing. The Fed isn't going to be using the confusing "bias" language anymore, which the market really never got a good handle on during 1999, when the Fed started telling the market which way it was leaning immediately after meetings, rather that in minutes released several weeks later.

Instead, they'll describe what they think the "balance of risks" is for the "attainment of its long-run goals of price stability and sustainable economic growth."

Also, its assessment of current economic risks will refer to a period extending past the next FOMC meeting, rather than just the period leading up to the meeting, which is what the bias referred to. The idea is for the Fed to be more plainspoken, but the market could make a muddle of it anyway.

Also, the Fed's going to make a statement after every meeting, rather than just in case of a rate change or a "major shift in the Committee's view about prospective developments." That's clear enough, though it seems they were doing this already.

TO VIEW TSC'S ECONOMIC DATABANK, SEE:

http://www.thestreet.com/markets/databank/861109.html

Chat with Brenda Buttner on AOL's MarketTalk Thursday, Jan. 20 at 1:30 p.m. EST. and with John J. Edwards III on AOL's MarketTalk Monday, Jan. 24 at 3:30 p.m. EST. MarketTalk is hosted by Sage Online.

Copyright 2000, TheStreet.com