daily06-01-00 - TheStreet

TheStreet.com's DAILY BULLETIN

June 2, 2000

http://www.thestreet.com

Market Data as of Close, 6/1/00:

o Dow Jones Industrial Average: 10,652.20 up 129.87, 1.23%

o Nasdaq Composite Index: 3,582.50 up 181.59, 5.34%

o S&P 500: 1,448.81 up 28.21, 1.99%

o TSC Internet: 849.92 up 58.29, 7.36%

o Russell 2000: 492.47 up 16.29, 3.42%

o 30-Year Treasury: 104 08/32 up 29/32, yield 5.949%

Companies in Today's Bulletin:

Microsoft (MSFT: Nasdaq)

eBay (EBAY: Nasdaq)

QXL (QXLC:Nasdaq)

In Today's Bulletin:

o Software: IT Managers' Fervor for Windows 2000 Cools as Breakup Looms
o Wrong! Tactics and Strategies: It's a Numbers Game
o Evening Update: Market Woes Cut Into Exult's IPO, Scuttle 2Bridge's
o Bond Focus: Yields Scoot Lower Again on More Slowdown Evidence

Also on TheStreet.com:

Internet: Growing QXL Still Has Much to Prove in eBay Face-Off

In Europe, eBay is just No. 2 among online auction sites, but its brand and financial muscle make it the favorite.

http://www.thestreet.com/tech/internet/951027.html

Europe: Frankfurt's Deutsche Boerse Reluctantly Extends Trading Hours

The pressure toward constant trading gives traditional stock markets little choice but to offer longer hours.

http://www.thestreet.com/int/euromarkets/951311.html

The TaskMaster: Hi-Ho, the Fed Is Dead

NAPM numbers have some investors singing, but we might not be out of the tightening cycle.

http://www.thestreet.com/comment/taskmaster/951396.html

The Invisible Mouth: Dear Diary: Ignore What They Say, the Screws Will Be Tightened...

Getting inside the head of this economy.

http://www.thestreet.com/comment/economics/951349.html

Software: IT Managers' Fervor for Windows 2000 Cools as Breakup Looms

By

Joe Bousquin

Staff Reporter

6/1/00 8:28 PM ET

Information technology managers see a glitch with Windows 2000: What if

Microsoft

(MSFT) - Get Report

is broken up?

With Microsoft almost certainly facing a breakup order in coming days, information technology managers are feeling Windows 2000 is anything but a sure thing. It's not that the platform is rife with bugs or prone to crash; on the contrary, IT pros say Windows 2000 is a remarkably stable system. But they are concerned about what kind of support they might get if Microsoft is sliced into different bits. And that's cooling enthusiasm for Windows 2000.

"This breakup thing has given me some apprehension over it," says Steven Cabana, a content-hosting manager who runs about 20 servers at streaming-media provider

Eloquent

(ELOQ)

located in San Mateo, Calif. He says he's been thinking about switching from his Windows NT systems to Windows 2000, but now will wait to see where the pieces fall after any potential breakup. "I'm holding off," he says.

Windows 2000, since its launch in February, hasn't been flying off the shelves. Analysts say its adoption rate has been slower than expected in the early going. The continued signs of sluggishness in Windows 2000 sales follow news in April of

lower-than-expected third-quarter revenue and lowered guidance from the company in the near term.

Though there are numerous reasons companies might be going slow on Windows 2000, including traditional anxiety about glitches in early releases of new software, it's clear some of the slow start can be blamed on Judge Thomas Penfield Jackson. With that legal uncertainty looming over the company, some IT managers are taking a wait-and-see approach on adopting Microsoft's new platform.

Ed Garcia, IT director at the

Horn Group

, a high-tech public relations firm in San Francisco, is one of those on the fence.

"We're going to hang on to our existing systems for now," Garcia says. He runs both Windows 98 and Windows NT. The firm will eventually move to Windows 2000 because "there's no other equivalent product out there." But for now, he says, "We're going to wait and see until the decision is made regarding the split-up."

Cabana and Garcia aren't alone. IT managers across the country have been voicing concerns over a potentially orphaned product should Microsoft be broken up, says John Roberts, director of editorial research at trade publication

Computer Reseller News

, which routinely surveys IT managers.

"The corporations have to be convinced that Microsoft will still be there standing behind them in case something goes wrong," Roberts says. "You always need support, and knowing that Microsoft is going to be there is a security blanket. How is a split-up going to affect all the details that Microsoft has been so good at in the past?"

Of course, not all the slowness at Microsoft, or the flatter adoption of Windows 2000, can be blamed on the company's legal problems. There are technical issues as well. For one, few IT professionals like to be on the leading edge of system adoption, preferring to allow others to work out the kinks.

"No one wants to be first," says Christopher Mortenson, an analyst at

Deutsche Banc Alex. Brown

who rates Microsoft a buy. His firm has not performed recent underwriting for the company. "It's a pretty major upgrade, even if you're using NT 4.0. People are taking their time."

He says the slower ramp up of Windows 2000 isn't that surprising, especially since Microsoft said before its release that it wouldn't spur the revenue spike that Windows 95 did.

"Windows 95 was much more consumer-oriented, much more of a retail product," Mortenson says. "They said Windows 2000 would have a slower adoption. It's aimed at corporate buyers, and they don't line up overnight at Computer World to buy it when it first comes out."

Jeff Van Harte, manager of the $300 million

(TEQUX)

Transamerica Premier Equity Fund, which is long Microsoft, says worries over the company's immediate future may be misplaced. After all, even if the court orders a Microsoft breakup, that decision would likely lead to a lengthy appeals process.

"It would be hard for me to believe that a lot of IT managers would wait a very long time for the final final final resolution of this thing to occur," Van Harte says. "What are you going to do, wait another two years?"

At the same time, Van Harte says a decision to break the software maker into different parts might cause some problems for the company as well.

"You can always still collaborate by phone, but it's not the same as having everyone together on the same campus," Van Harte says. "I don't know if that would translate into a negative for the stock price, but I feel, operationally, it would be a negative if the company is broken."

Which are exactly the kinds of concerns that IT managers have about a Microsoft that is not one. But not all IT managers are shunning Microsoft's system.

Mark Christiansen, CTO at

Luna Information Systems

, an e-commerce software developer in Oakland, Calif., says he's already running the system on 30% of the company's laptops, an area where Windows 2000 has been winning praise from the tech community. With boxmakers installing Windows 2000 on the machines they ship, he says the system will inevitably take hold.

"We don't think the breakup is really going to be decided for a year, anyway," Christiansen says. "And for a start-up like ourselves, the fast way to get something down is usually the right way. If a box comes with software on it, that's the system to use."

Kevin Chao, co-founder and vice president of engineering at

Datasweep

, which develops Web-based supply-chain software in San Jose, Calif., says that a breakup of Microsoft actually might be beneficial in getting support for its products. His company is already implementing the system, as well.

"If Judge Jackson does decide to break the company up, I can't see that happening for a few years anyway, and by that time, Windows 2000 is going to be the standard," Chao says. "And if Microsoft was split into two or three parts, I would think they'd be more inclined to give us support. The different

support units within Microsoft are almost separate companies as they are. I think the breakup will give them more focus."

Still, there are clear disadvantages to a broken-up Microsoft in terms of its product line.

Eloquent's Cabana, for example, says he's worried the engineers who helped write Windows 2000 might leave the company if things come apart in Redmond.

"With the instability of the company, engineers could start to leave and

Microsoft's focus might not be on the product," Cabana says. "I'm not saying it's got catastrophic problems, because

Windows 2000 is stable. But it's a risk I don't want to take right now."

Many of his colleagues, apparently, don't want to take that risk either. Which means Microsoft, despite its best code-writing efforts, could face a glitch in Windows 2000 sales for quite some time.

Wrong! Tactics and Strategies: It's a Numbers Game

By

James J. Cramer

6/1/00 9:21 PM ET

Hold it! Those of you who are convinced that the market can't turn that fast or change that completely, those of you who are skeptical about a switch, you must ask yourselves this.

What would have happened today if the purchasing managers report had been strong? What would have happened if the prices hadn't peaked? What would have happened if there had been further acceleration?

I think the answer is easy. We would have retested the lows last week. It would have happened that way because it meant the

Fed

was only midway through and would have to tighten much more. That was a high risk. One that I didn't want to take at my firm.

Sometimes data come out that change things. Sometimes data come out that make a bull case better. That happened. Different data would have made a bear case.

That's just the way it works. Always has. Always will.

*************************************************************

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. 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: Evening Update: Market Woes Cut Into Exult's IPO, Scuttle 2Bridge's

By

Eileen Kinsella

Staff Reporter

6/1/00 7:32 PM ET

Market volatility continues to frighten away prospective IPOs. Following the close of trading, one company cut terms on its planned offering ... again, while a second company pulled out altogether.

Exult

, an online human resources management firm, said the terms of its IPO have been lowered, this time to 6 million shares at between $10 to $12 each, from 9 million shares for $13 to $15 each. The company now expects to net about $60.1 million based on the new terms, about 48% below the $116 million expected under previous terms. The original conditions set on April 25 were for 14 million shares at $14 to $16 a share.

2Bridge

, which provides software that lets customers develop online business workplaces known as eHubs, withdrew its planned $57.5 million offering, citing market conditions.

In other postclose news (earnings estimates from

First Call/Thomson Financial

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

Mergers, acquisitions and joint ventures

A consortium of U.S. utilities that teamed up earlier this year to develop an Internet-based B2B marketplace named

Commerce One

(CMRC)

as its primary technology partner. The group of 15 utilities also said it added six members:

Carolina Power & Light

(CPL) - Get Report

;

DTE Energy

(DTE) - Get Report

;

Dominion Resources

(D) - Get Report

;

El Paso Energy

(EPG)

;

GPU

(GPU)

and

Ontario Power Generation

.

Aluminum company

Alcoa

(AA) - Get Report

said it raised its bid for precision castings-maker

Howmet

(HWM)

to $21 a share. Alcoa said Howmet's independent directors agreed in principle to the new bid and also said it sees a merger agreement as early as Friday.

Boeing

(BA) - Get Report

and

United Technologies

said they received a $3.15 billion U.S. defense helicopter contract.

Gillette

(G) - Get Report

said it is in exclusive negotiations to sell its stationery products business and related assets to

Newell Rubbermaid

(NWL) - Get Report

. The stationary business consists of the PaperMate, Parker and Waterman pens and Liquid Paper correction products.

Back to top

Earnings/revenue reports and previews

Ball

(BLL) - Get Report

said it expects a second-quarter charge of about $86 million as part of a decision to close a North Carolina plant that employs 125 people.

Remec

(REMC)

posted first-quarter earnings of 5 cents a share, beating the four-analyst estimate of 3 cents and the year-ago loss of 15 cents.

Starbucks

(SBUX) - Get Report

said May same-store sales rose 9% over last year's results.

Wind River Systems

(WIND)

posted first-quarter earnings of 11 cents a share, well above the four-analyst estimate of 8 cents and in line with the year-ago 11 cents.

Back to top

Miscellany

Embarcadero Technologies

(EMBT)

named Chairman Stephen Wong to the additional posts of CEO and president. Wong resumes the CEO position he held prior to the appointment of Ellen Taylor, who joined the company in October 1999 as president and CEO. Taylor is leaving the company to pursue other opportunities.

Back to top

Bond Focus: Yields Scoot Lower Again on More Slowdown Evidence

By

Elizabeth Roy Stanton

Senior Writer

6/1/00 5:14 PM ET

Treasury prices ran up for a second consecutive day after a key manufacturing indicator dropped, adding to the case that economic growth is slowing after 175 basis points worth of interest-rate hikes by the

Fed. Yields fell to one-month lows, and the 30-year bond's yield breached 6%.

The benchmark 10-year Treasury note gained 22/32 to 102 7/32, dropping its yield 9.7 basis points to 6.188%, the lowest since April 26. Shorter-maturity yields fell somewhat less. The two-year note, for example, rose 5/32 to 100 1/32, cutting its yield 8.9 basis points to 6.595%.

The 30-year bond gained 24/32 to 104 6/32, dropping its yield 5.3 basis points to 5.947%, the lowest since April 28. And at the

Chicago Board of Trade

, the September

Treasury futures contract added 25/32 to 96 13/32.

The chief catalyst for the move was the

Purchasing Managers' Index

. Expected by economists polled by

Reuters

to rise to 55.3 in May, it fell to 53.2, the lowest since April 1999.

Considering that a reading of 53.2 is consistent with an above-trend

GDP

growth rate of about 4%, the magnitude of the rally was surprising to some.

"What the Street is counting on is that the economy really is slowing by a significant amount, and so the Fed is either not going to need to tighten further, or what they're going to need to do is extremely limited," said Maryann Hurley, a bond trader at

D.A. Davidson

in Seattle. But while growth is clearly slowing, "it may be premature to say nothing further is needed," Hurley said. "We need to see weaker numbers going forward, consistently. We've had some headfakes before. And these numbers are slowing from extremely strong levels."

She cited as an example

yesterday's

new homes sales

report, which triggered a rally in the bond market even though it slowed to a pace that is very fast by historical standards.

"We may be getting ahead of ourselves at these levels," Hurley said, pointing out that the two-year note's yield sits just 10 basis points above the current

fed funds rate. "The one thing I know for sure is that the Fed is not going to ease," she said. "That makes things look expensive in here."

The bond rally was all the more surprising in light of today's stock market action, which saw all the major proxies take big strides. Recently, big stock rallies have sometimes given bond investors reason to sell, on the theory that rising stock prices contribute to too-fast economic growth by emboldening consumers to spend.

But Craig Simmons, principal at

Williams Capital Group

, said the rally appropriately reflected the expectation that the economy is in the process of slowing, and that additional action by the Fed on rates will be limited. "The risk now is that the Fed could overshoot," he said.

As for today's

Nasdaq Stock Market

rally, Simmons said he doesn't expect much of an effect on future economic activity. "Trillions have been wiped out, and people who've lost on the way down don't necessarily recover on the way up," he said.

Economic Indicators

In other economic news, the weekly count of

initial jobless claims

rose to 286,000 from 285,000, indicating a very slight slackening of labor market conditions.

And

construction spending

slid 0.6% in April, its first decline in eight months. The year-on-year growth rate eased to 7.0% from 7.2%.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 108.50 yen, up from 107.65. The euro was worth $0.9310, down from $0.9377. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for July delivery at the

New York Mercantile Exchange

rose to $30.14 a barrel from $29.01.

The

Bridge Commodity Research Bureau Index

rose to 223.39 from 223.25.

Gold for August delivery at the

Comex

rose to $275.40 an ounce from $274.80.

TO VIEW TSC'S ECONOMIC DATABASE, SEE

http://www.thestreet.com/markets/databank/950751.html

Copyright 2000, TheStreet.com