April 24, 2000

Market Data as of Close, 4/21/00:

o Dow Jones Industrial Average: 10,844.05 unchanged 0.00, 0.00%

o Nasdaq Composite Index: 3,643.88 down 62.53, -1.69%

o S&P 500: 1,434.54 unchanged 0.00, 0.00%

o TSC Internet: 791.13 down 15.73, -1.95%

o Russell 2000: 481.84 unchanged 0.00, 0.00%

o 30-Year Treasury: 105 31/32 unchanged , yield 5.825%

In Today's Bulletin:

o Editor's Letter: The Coming Week on TSC
o Market Features: Will Microsoft's Malaise Sicken the Nasdaq Again?
o The Coming Week: Past Microsoft, Big Economic Data Lurk
o The Coming Week in Europe: U.K. Mobile-Phone Licenses Up for Sale

Also on

Wrong! Rear Echelon Revelations: Buzz and Batch and Microsoft-Monday

The trader plays fly on the wall as the guys go over the game plan.

This Week in IPOs: First-Day Pops: Fewer and Not Quite as Loud

It may be too early to tell, but a pickup in deal performance is not in the numbers.

The Coming Week in Asia: Will Hikari's Numbers Mean Market Hari-Kari?

Also, investors look to Oracle Japan's move to the Tokyo Stock Exchange for a tech jump-start.

Jim Griffin: Economy and Market: A Help Wanted/Bid Wanted Cycle

It looks like the market's period of anxious bedside attendance has only just begun.

Editor's Letter: The Coming Week on



Dave Kansas


4/23/00 4:13 PM ET

It doesn't get any easier. After another up-and-down, albeit thankfully short, week,


(MSFT) - Get Report

sent us into the weekend with a dourish earnings report. Could more trouble be in store come the opening bell on Monday? If our television program is any guide, the pessimism in the market is climbing. Though the Elian Gonzalez case pre-empted the show in many areas, the heart of the program was a bunch of dark thinking. The mood underscored the nervousness that has taken hold of the investment populace. And that mood shows little indication of lessening.

Of course, there's a contrarian view that such overwhelming pessimism can mark a bottom. The theory goes that when everyone's negative, the selling's been done. During the program, guests remarked on the strong negative consensus, wondering if we might be at such turning point. Are we? The coming days will provide some clues, but it will still be some time before this market sorts itself out. The bears have scored some powerful blows in the past few weeks, and the bulls will need to regain strength over a number of sessions, not all at once.

As you prepare for the week ahead, let me point you to a couple of special features. One is our new Streetside chat, this week featuring guest

Peter Canelo, a strategist with

Morgan Stanley

. He offers a cogent bullish case on the market, which makes for some good reading. Also,

check out our Special Report: The Wild Ride -- Where Stocks Stand. Both of these specials are essential reading for those seeking more wisdom in this market. And this Thursday,

James J. Cramer

will participate in a chat on


at 5 p.m. EDT. His thoughts are especially crucial at times like these, and for non-AOL members we'll have a transcript up promptly after the chat's conclusion.

As ever, we'll be on the case all week, prowling for any hints of recovery, shining a light on areas that are weathering the storm and warning you about the pitfalls that still might be ahead.

If you've got concerns or questions, don't hesitate to email me at or our very able customer support staff at We'll make sure your issues get handled.

Now get ready for another intense week on

. We're digging in hard to help you figure out this confounding market.

L'Etoile du Nord

Dave Kansas


Dave Kansas is editor-in-chief of In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

Market Features: Will Microsoft's Malaise Sicken the Nasdaq Again?


Adam Lashinsky

Silicon Valley Columnist

4/23/00 6:26 PM ET

Once again, nervous tech investors approach Monday's session with a single question in mind: Will


(MSFT) - Get Report

bring down the rest of tech with it? Late Thursday, when most people were heading out for the long holiday weekend, Microsoft kept investors and analysts after class, issuing a third-quarter earnings report that, as usual, exceeded the consensus estimates. Mr. Softee recorded a very healthy $2.3 billion of cash flow in a quarter with $5.7 billion in revenues.

But, as they always say in the fine print, past results are no guarantee of future performance. And this time, it's more than boilerplate. Microsoft execs issued a glum assessment for the current quarter and fiscal 2001. Beating Wall Street's March-quarter expectations (with a healthy dollop of investment gains) is irrelevant compared to the company's instructions to analysts to lower their estimates for the next fiscal year. Remember, the forward guidance is far more important than the reported results.

How bad could the market reaction be? In after-hours trading Thursday, Microsoft shares tumbled four points. And, just two weeks ago, the shares took the


into a 7.1% nosedive on April 12 after

Goldman Sachs

analyst Rick Sherlund presciently predicted that Microsoft might have trouble meeting the revenue numbers expected by the street. And, voila, Microsoft's revenue did come in light because of lower-than-expected sales to PC makers.

"There are lots of cross-currents here," says David Readerman, an analyst with

Thomas Weisel Partners

in San Francisco. "There will be either a continued rotation into other tech leaders like


(ORCL) - Get Report



(INTC) - Get Report

, or there will be a rotation out of tech because of Microsoft."

Readerman wasn't willing to disclose his bet last week, although he did speculate that "Sun and some of the Linux players will be dancing on the grave a little bit." By that he means that

Sun Microsystems

(SUNW) - Get Report

will benefit at Microsoft's expense from hardware sales based on its Unix operating system, as will various Linux companies that may steal market share from Microsoft with the open-source operating system. On the other hand, Charles Phillips, enterprise software analyst at

Morgan Stanley Dean Witter

, is betting that the market will see this more as a Microsoft event than as a sector-slammer. "This is more evidence that Microsoft has peaked in influence, which is good for people who compete against it," he said over the weekend. "They've gone from being the company that could do no wrong to just another important player."

There is already evidence for Phillips' case. Even as Microsoft has slipped 32% on negative news since Jan. 1, Sun's shares are up 13% in the year to date. (On April 14, Sun reported a stunning 35% jump in quarterly revenue and beat analyst earnings estimates.) It's tougher to handicap the action in the Linux area, however. If, as Microsoft's comments to analysts on Thursday night indicate, there is a slowdown in sales growth in desktop PCs and PC-based servers, the Linux companies would also be victims. Shares of

Red Hat


, perhaps the best-known of the Linux brigade, are down 75% so far this year, having closed Thursday at 25.

What is clear is that when traders return on Monday, the psychology for tech stocks will likely be in the dumps. As

James Cramer

wrote here Thursday, the tone of the Microsoft conference call couldn't have been worse. Microsoft has often used the quarterly calls to tamp down overheated analyst expectations, encouraging analysts not to raise their estimates for future periods just because the company had beaten their previous expectations.

Last week, Microsoft Chief Financial Officer

John Connors

went beyond suggesting that rosier outlooks would be a mistake. He instructed Wall Street to scale back


earnings-per-share estimates for the year ending June 30, 2001, indicating they were too high by 5 cents. That's a precedent that could rattle a market accustomed to seeing Microsoft shrug off just about any setback and go on to set new highs.

Conner placed the blame on disappointing demand for corporate PCs and pointed out once again that a company as large as Microsoft -- it's fiscal year revenues are expected to approach $23 billion this June -- will find it increasingly difficult to rack up 20%-plus annual growth. Prodded by analysts Sherlund and others, Connors couldn't even speak optimistically about the current April, even though the month is nearly two-thirds gone by now. The implication: The world's most important tech company is off to a lousy start in its fourth fiscal quarter.

Or, could it be that Microsoft is suffering from unique problems that other tech companies may not feel? Intel told analysts last week that it remains upbeat about PC demand.


(CSCO) - Get Report

and other suppliers say they still see strong demand, too.

Even if Microsoft is suffering from unique problems, it could still drag down all tech shares simply because it's so huge. CFO Connors made that point during the conference call when he bragged that Microsoft's revenue increase in the quarter alone accounted for four and a half



, 20


(RNWK) - Get Report

and 75% of


(ORCL) - Get Report

entire software sales (not including its consulting revenues).

Then again, Morgan Stanley's Phillips says the tech markets may not be so dependent on the mood swings of the software giant. He acknowledges that the Microsoft news could make the coming week in tech stocks another turbulent one. "But I don't think it's as cataclysmic as it would have been a year ago," he adds.

There's another aspect of the Microsoft earnings announcement that bodes ill for the software giant and other tech companies that have been generating great numbers, in part, through gains on investments. Connors said Microsoft locked in enough gains in early April to ensure that its stock-sale gains in its fiscal fourth quarter equal the $442 million that it amassed in the third. This isn't great news for the rest of the stock market because it means that Microsoft has already begun bailing out. It also suggests that investors will begin scrutinizing every other company that has relied on portfolio windfalls, a strategy tech companies have adopted only recently as a way to manage earnings.

Microsoft's fall from glory also should give pause to the entire high-multiple crowd. Even taking into account Microsoft's revised earnings outlook for fiscal 2001, it still trades for about 42 times 2001 earnings. But the company expects earnings growth only in the midteens. Nonleaders with growth rates in the midteens get multiples in the midteens. But Microsoft remains very much a leader. What's the proper multiple for other leaders in this climate? That's to be determined this week.

How the market reacts to Mr. Softee's news will have huge repercussions. A hit to the already-dented stock could take down both the


and the Nasdaq.

Influential analysts such as Thomas Weisel's Readerman will play a role. On Friday, I asked him if he's thinking of changing his current buy recommendation, his firm's second-highest. "I've got 48 hours or so to make up my mind on that," was all he would say.

Come Monday morning, tech investors will quickly learn if this is a Microsoft-only event or if the contagion will spread.

Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

The Coming Week: Past Microsoft, Big Economic Data Lurk


Justin Lahart

Associate Editor

4/20/00 8:14 PM ET One of the hard things to figure out about the recent bludgeoning the stock market underwent is how it could have happened in the midst of such a strong earnings season.

Company after company, from


(MCD) - Get Report



(AAPL) - Get Report


Ingersoll Rand

(IR) - Get Report

, has posted strong results. (


(MSFT) - Get Report

Thursday report is one of the few real disappointments.) More than half of the companies in the

S&P 500

have reported so far, and they've been beating analyst estimates by an average of 6.4%, according to

First Call/Thomson Financial

. Year-over-year earnings growth is tracking at 28%.

But that phenomenal growth doesn't come from nothing. The economy was frightfully hot in the first quarter -- many economists have upped their

gross domestic product forecasts to near the 7% level -- raising the possibility that the

Federal Reserve will hike rates aggressively. Since the strong March inflation report, there has been a lot of debate on the Street over the possibility that the Fed may raise its target

fed funds rate by 50 basis points at its May 16 meeting.

This makes the coming week an important one. Microsoft's miss may dominate the early part of the week, but Thursday brings first-quarter GDP, the first-quarter

Employment Cost Index -- the final word on wage inflation -- and a speech by Fed Chairman

Alan Greenspan. By the time that day is over, the debate on what the Fed's going to do next might be pretty much over.

Is Greenspan Behind the Curve?

"What it's going to come down to is whether or not the Fed chairman believes he's behind the curve or not," said Mary Dennis, senior economist at

Merrill Lynch Government Securities


If he does, he's going to have to let the markets know that the Fed may hike by a half point, and soon. The Fed does not like to disrupt markets, and never less than in the present case. Maybe the biggest reason not to go 50 basis points is that, with the fragile state of the market, stocks could turn sharply lower. This could, in turn, basically tie the Fed's hands, precluding it from tightening further.

Worse, it would send a message to investors that Uncle Al will always protect them in the end. If there's a reason for the Fed to stick to gradualism, said Dennis, that's it.

A red-hot economy and a big debate on how far the Fed is going to go is not very favorable for stocks, particularly after all the recent volatility.

"Going forward, I think we have a tough environment here over the next three to six months," said Allen Ashcroft, a money manager with

Allied Investment Advisors

. Interest rates aren't the only problem, says Ashcroft. Seasonally, it's just not a very good time for stocks, particularly tech names.

The Tech Trader's Worrisome Prayer

And tech has other problems, too. Many players were hurt badly in the selloff, and many may exit the market if they see stocks come up to where they bought them. It's the familiar prayer: "I will sell my stocks and be kind to animals and visit Aunt Millie and go to church, God, if you just make me whole again."

This creates a sort of natural resistance in the market, and may mean that it will be sometime before tech stocks reach their old highs again. In the meantime, other stocks may come to the fore, but it will be a seesaw effect, with money shifting back and forth between New Economy and Old Economy stocks.

"We're going to have some more chop," said Brian Conroy, head of listed trading at

J.P. Morgan

. "It will be a rotational chop rather than a macro-direction chop, out of tech and banks and into some of the defensive names. It's going to be a little bit of a tug of war."

Ashcroft, though he believes that the rotation will continue into some of the old economy, and though he reckons that some of the highflying Internet and biotech issues will never reach their old highs, says that tech's long-term prospects are good.

"I still think tech is going to be where you're going to get your long-term growth," he said. "The fundamentals of some of these companies couldn't be better. That's why I think we're going to get through this."

That doesn't mean there won't be some scary moments. With the coming week's big economic reports, one can easily imagine stocks dipping back toward the lows they hit during the selloff. If that happens, the important thing will be for the old lows to hold -- dip below them, and people start to worry.

Laszlo Birinyi, president of

Birinyi Associates

, thinks that it will not. While some technicians have said that

April 14's selloff didn't include the kind of fear they usually associate with a bottom in the market, he notes that toward the end of the day it looked very much like capitulative selling, with institutions in particular shedding holdings at a rapid pace. Technology looks good to him right now, as do financials and selected drug companies.

Whether those things will still look good after Thursday's big economic reports -- well, that's what the coming week is all about.

The Coming Week in Europe: U.K. Mobile-Phone Licenses Up for Sale


Nick Watson

Senior European Correspondent

4/22/00 12:30 AM ET

LONDON -- Although Europe will be on holiday on Monday, serious investors are unlikely to stray too far from a place where they can find out what's happening in the U.S. markets that day. And that shouldn't be too difficult, because you can now get stock quotes over your mobile phone.

Getting quotes, though, is obviously something mobile phone operators consider to be the thin end of the wedge if you consider the astronomical prices they're prepared to pay for one of the U.K. licenses to build the infrastructure for and operate the next generation of mobile-phone services.

Since the total amount bid so far for the five licenses is now more than four times than originally expected, nobody appears willing to predict when the final hands will be played. But considering that the original field of 13 players has been winnowed down to just seven, the end could come as early as next week.

As of Thursday, the amounts bid were worth

22.2 billion ($35.3 billion) and the remaining bidders were the four incumbents --

Vodafone AirTouch

(VOD) - Get Report




British Telecom's


BT Cellnet


Deutsche Telekom's

(DT) - Get Report


-- as well as newcomers


, part of Canada's




NTL Mobile

, which is jointly owned by the cable company




France Telecom



Although the Chancellor of the Exchequer, Gordon Brown, and finance ministers of other European countries planning such auctions are no doubt cock-a-hoop at this unexpected windfall, not everyone is happy, notably Ron Sommer, chairman of Deutsche Telekom.

On Wednesday, following another quarter of disappointing earnings from Deutsche Telekom, Sommer moaned publicly about the "gigantic sums" of money these licenses are commanding. And well may he complain, because if he does win one of the licenses in the U.K., he'll then have to fork out another huge amount for one of the licenses in Germany's upcoming auction.

These comments could be a prelude to One2One dropping out the auction. Then again, the auction is becoming more and more like a game of poker that perhaps one should not read too much into.

The uncertainty over the auction is equal only to that surrounding the state of the IPO market in Europe.

Much was made this week of the success of Deutsche Telekom's spinoff of its Internet business,


, as a sign that Europe's IPO market would soon return to good health. On Monday, the shares were offered at 27 euros each, and despite the perilous market conditions, managed to rise 40% while all around it the markets were falling. The shares were trading Thursday down 0.32 euros, or 0.8%, at 38.65.

However, as


reported, Deutsche Telekom's T-Online is one thing, is quite another.

"You can bet your boots that Deutsche Telekom used its influence with the larger institutions," says Philip Dumas, head of institutional sales at the investment and research firm


. T-Online's IPO "was always going to be a success; end of story."

Yet Neil Austin, head of new issues at the U.K. consultancy firm


, believes there may be more concrete evidence that the IPO market will improve. While he concedes that the recent fluctuations in the


and the U.K.'s


indices create uncertainty, a market pick-up toward the end of the first quarter indicates a strong pipeline, with most advisers working to capacity on flotations throughout the summer.

And as Dulacher's Dumas points out, "It's pretty difficult to cancel or postpone an IPO, it's probably easier to change the terms and the pricing."

To gauge the uncertainty of the European IPO market, one need look no further than the IPO of the U.K.'s video-on-demand company,

Yes Television


On Monday, Yes TV was due to fix the price for the sale of the 81 million shares, which at the midpoint of the price range would have valued the firm at

810 million ($1.3 billion). However, the turbulence in the markets created by the fall on Wall Street on Friday forced the company to say Monday that it was postponing the issue. Only two days later, however, the IPO was back on, with Yes TV saying it would complete the offering by May 22 within the same price range.

What Yes TV decides to do should the markets begin gyrating again is anybody's guess, but analysts say appearing to be controlled by such external events doesn't do the company's reputation in The City any good.

Perhaps, but then again, uncertainty, it seems, is in no short supply at the moment.

Copyright 2000,