daily06-12-00 - TheStreet


Publish date:

TheStreet.com's DAILY BULLETIN

June 13, 2000


Market Data as of Close, 6/12/00:

o Dow Jones Industrial Average: 10,593.55 down 20.51, -0.19%

o Nasdaq Composite Index: 3,800.90 down 73.94, -1.91%

o S&P 500: 1,452.60 down 4.35, -0.30%

o TSC Internet: 906.47 down 42.04, -4.43%

o Russell 2000: 511.26 down 11.80, -2.26%

o 30-Year Treasury: 105 05/32 up 5/32, yield 5.875%

Companies in Today's Bulletin:

Corning (GLW:NYSE)

SDL (SDLI:Nasdaq)

Citrix (CTXS:Nasdaq)

Transkaryotic Therapies (TKTX:Nasdaq)

In Today's Bulletin:

o Telecom: Industry Talk Has Corning-SDL Deal in the Works
o Wrong! Tactics and Strategies: Might as Well Jump
o Evening Update: Evening Update: NBCi Warns of Shortfall, Sets Restructuring
o Bond Focus: Bonds Gain on Light Volume Ahead of Key Data

Also on TheStreet.com:

Biotech/Pharmaceuticals: Big-Drug-Firm Developments Leave Small Biotechs Reeling

Shares of Alkermes and Transkaryotic suffer as investors consider news about big drug firms.


Internet: Wall Street Peels Citrix After Monday's Sour Surprise

Tight lips sink ships, investors decide in a 46% selloff.


Internet: PurchasePro Inks a Deal With Hilton but Still Gets No Respect

With a large supplier base, the B2B exchange builder might get a second look.


The TaskMaster: It's Not Likely Goldilocks Will Visit This Economy

Some discount growth slowing enough to ward off Fed hikes without hurting earnings.


Telecom: Industry Talk Has Corning-SDL Deal in the Works


Scott Moritz

Staff Reporter

6/12/00 7:27 PM ET

The glass looks more than half-full when it comes to


(GLW) - Get Report

-- and we're not talking Pyrex.

Monday, the maker of optical fiber for the telecommunications industry projected that second-quarter earnings would handily beat Wall Street's estimates. Corning shares jumped 9.2% on the forecast, hitting a 52-week high and igniting a rally across the optical-components sector even as the


slid some 3%.

Now the company, which has spent some $7 billion in the last year and a half to push to the forefront of the optical-fiber business, appears ready to make another big splash. Industry observers expect Corning to acquire optical-parts rival



as it seeks to keep pace with leader

JDS Uniphase


, which has also been on a buying spree.

Corning's head of optical operations, Wendell Weeks, wouldn't comment on acquisition rumors but added, "You can count on us to continue to do deals." For his part, SDL Chairman and CEO Donald Scifres said, "I just can't comment on anything," when asked about talks with Corning.

'So Fast'

SDL makes network components such as laser pumps and specialized optical amplifiers that help shoot light down optical fibers. Analysts say these are precisely the types of products Corning needs. Indeed, with SDL, Corning would catapult ever closer to its stated goal of providing networking companies a complete set of optical products that can generate and carry light pulses end to end.

Glass Houses
Corning stock trading at 113 times earnings

Source: BigCharts

"Things are consolidating so fast in this industry, I'd be surprised if this deal wasn't done in the next three to six months," says a person close to the two companies who asked not to be identified.

"SDL would give them immediate critical mass in several important segments," says Conrad Liefur, a

U.S. Bancorp Piper Jaffray

analyst who doesn't follow Corning but has a strong buy on SDL. Piper Jaffray has no banking ties to either company.

Looking Glass

And with two top optical-component makers, JDS Uniphase and

E-Tek Dynamics


, preparing to close their $15 billion merger, Corning must be looking for allies.

Corning and SDL "now are looking at all possible alternatives to become big suppliers," says

J.P. Morgan

analyst Charles Willhoit, who has a buy on both stocks and is boosting his Corning price target to 300 from 250. Morgan co-led a recent Corning offering.

After selling off its glassware division in 1997, Corning has been richly rewarded for focusing on the booming global fiber-optic business. Customers simply cannot get enough of Corning's products, and investors can't get enough of the stock, which has nearly doubled this year. Proof of the bursting demand came Monday, with Corning's stellar profit forecast. SDL shares rose nearly 5% Monday to close at 261 63/64.

"The scream for bandwidth has become so intense in the telecom industry, all of the leading players have had to integrate more extensively than they ever have before," says

Harvard Business School

technology visionary Clayton Christensen.

Buying Spree

Corning hasn't been stingy with its richly valued stock.

Already the nation's leading manufacturer of fiber-optic cable, Corning has been adding to its optical portfolio, last month acquiring device-maker


for $2 billion and last year setting a $1.8 billion deal for laser pump maker

Oak Industries


Corning has taken the acquisition path well traveled by others in the networking sector.


(CSCO) - Get Report

, for example, expects to make more than 20 acquisitions this year.



buying spree continues, most recently

netting optical-device maker





has also followed suit, unveiling last week a $2.9 billion

pledge for "metro" device maker


. Even SDL is buying: Last week it paid $2.2 billion for

Photonic Integration Research.

"At this phase in an industry's history, when a product isn't yet good enough, you have to be integrated," says Christensen. The thinking, says Christensen, is that "you have to do everything in order to do anything."

Corning's Weeks says the push for consolidation is the industry's way of answering customers' requests. "System suppliers want less and less suppliers; companies that can do a lot more and integrate across the space are more valuable to them," says Weeks.

Morgan's Willhoit adds: "They are looking to be the one-stop arms merchant to the optical world."

Wrong! Tactics and Strategies: Might as Well Jump


James J. Cramer

6/12/00 7:32 PM ET

You can't be too thrilled about that session. Tech basically stunk up the joint, and whatever good


(GLW) - Get Report

might have brought was washed away by


(CTXS) - Get Report


To me it looked like whoever was doing the buying last week -- maybe those brand new


funds -- ran out of firepower, and the stocks that had been taken up just got clobbered.

The problem with where we are in the cycle is that anything that goes straight up here seems like it is manipulated, given that things simply aren't so hot these days. Take

Computer Associates

(CA) - Get Report

. We thought things were good, but maybe they aren't. The stock gave up all of its ground. Same with


(VRSN) - Get Report


We think VeriSign is terrific, but we were astounded when it went up 20 last week. Of course, we were equally astounded when it went down 20 today and it made us think that maybe VeriSign shouldn't have ramped the way it did and that someone just plain moved it up.

When things are as uncertain as they are in the economy right now, I expect choppiness. The idea of an ever-rising business-to-business stock or Net infrastructure situation seems pretty ludicrous given the chaos of the Net world.

I think we have to accept the up-and-down nature of this new phase of the market and be prepared to jump off when things get too high, as was the case with a bunch of tech last week.

Different markets; different styles of trading. Makes all the sense in the world.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long VeriSign. 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: Evening Update: NBCi Warns of Shortfall, Sets Restructuring


Eileen Kinsella

Staff Reporter

6/12/00 7:35 PM ET

NBC Internet


warned it sees lower-than-expected second-quarter and 2000 revenues and wider-than-expected losses because of low ad sales and a restructuring. The six-analyst estimated loss for the second quarter is 70 cents a share while the seven-analyst estimate for 2000 is a loss of $2.84. The company said it sees profits after noncash expenses in 2002.

NBCi also announced it will combine its consumer Web sites under a single


brand. The new site will include




and launch in the fall.

Investors hadn't waited for NBCi's announcement to start losing confidence in the company, which started trading last November; the stock, which peaked at 106 1/8 in late January, closed at 24 5/8 Monday, down 1 13/16. The company's partial blame for disappointing results on "lower-than-expected sales revenues associated with a soft dot-com advertising market" could foreshadow troubles for other Net firms that rely on consumer ad revenues.

NBCi's planned phaseout of the Snap.com and Xoom.com brands was foreshadowed by its February launch of a high-speed portal. The company called the site NBCi.com, choosing not to include Snap.com or Xoom.com.


Justice Department

, along with 17 states involved in the antitrust lawsuit against


(MSFT) - Get Report

asked Judge Thomas Penfield Jackson to ignore the company's efforts to dismiss a breakup order following the ruling last week. Government lawyers also outlined plans for the appeals process and set potential target dates for imposing the ordered breakup.

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

Engage Technologies


posted a third-quarter loss of 22 cents a share, narrower than the 10-analyst expected loss of 27 cents and wider than the year-ago loss of 19 cents.

Pizza chain

Papa John's

(PZZA) - Get Report

said May system-wide

same-store sales were down 2.8%.



said May same-store sales were up 7%.



reported third-quarter earnings of 21 cents a share, in line with the 22-analyst estimate and up from the year-ago 16 cents a share.


Computer Associates

(CA) - Get Report

declined to comment on its unusual market activity following a request from the

New York Stock Exchange. The company's shares fell about 14% today, despite an analyst meeting in which executives painted a picture of strong revenue growth for the year but did not give specific comments about the current quarter.

Bond Focus: Bonds Gain on Light Volume Ahead of Key Data


Elizabeth Roy Stanton

Senior Writer

6/12/00 4:35 PM ET

Treasuries meandered higher today on negligible volume, driven, market participants said, by optimism that economic data due out later this week will confirm that economic growth is slowing.

Bond prices managed to rise, sending intermediate- and long-maturity yields to six-week lows, even though oil rallied sharply, with negative implications for inflation.

Possibly triggering some purchases of Treasuries,

Merrill Lynch

today increased the bond allocation in its model portfolio to 35% from 30%, while cutting commodities back to zero from 5%.

The benchmark 10-year Treasury note added 9/32 to 102 31/32, trimming its yield 3.8 basis points to 6.126%. Shorter-maturity yields fell by like amounts. The 30-year bond gained 7/32 to 105 5/32, dropping its yield 1.5 basis points to 5.881%. And at the

Chicago Board of Trade

, the September

Treasury futures contract added 6/32 to 97 16/32.

On days like today, when volume is paltry because it's a summer Monday with no economic data, experts counsel against reading much into the market's doings. According to tracker


, just $13.9 billion of Treasuries changed hands by 3 p.m. EDT, 40.2% less than average for a Monday over the past month.

Having said that, some attributed the interest in Treasuries today to hope that this week's major economic reports -- especially May

retail sales

tomorrow and the May

Consumer Price Index

on Wednesday -- will confirm that consumer spending is slowing and inflation is under control. With that backdrop, people believe, the

Fed can afford not to hike interest rates at its next meeting on June 27-28.

"There's a lot of releases coming out this week, and people's expectations are that they're going to be on the soft side," said Matthew Kuhns, a bond portfolio manager at

Transamerica Investment Management

in Los Angeles. "The market's had a pretty good move and it looks like it's holding in. Greed is overcoming fear in a big way."

The CPI report in particular has the potential to bring more people into the camp that thinks the Fed will stand pat at its next meeting, after having hiked the

fed funds rate by a total of 1.75 percentage points over the last year, said Tony Crescenzi, bond strategist at

Miller Tabak

. Currently, traders of

fed funds futures put the odds of a hike in the rate from 6.50% to 6.75% at 46%, down from 50% on Friday.

Also of interest to bond traders this week is a speech by Fed Chairman

Alan Greenspan tomorrow at 1:10 p.m. They're wondering if he'll tip his hand regarding the likely outcome of the meeting. Greenspan's topic, "Business data analysis," isn't particularly promising. But hope for guidance lives. "This is a perfect opportunity for the Fed Chairman to set out his thinking in the wake of the run of weaker numbers,"

High Frequency Economics

chief U.S. economist Ian Shepherdson told clients in a published comment this morning.

Currency and Commodities

The dollar fell against the yen and gained against the euro. It lately was worth 106.78 yen, down from 106.90. The euro was worth $0.9527, down from $0.9529. For more on currencies, please take a look at


Currencies column.

Crude oil for July delivery at the

New York Mercantile Exchange

rose to $31.74 a barrel, nearly a three-month high, from $30.20, on speculation, arising from a Saudi Arabian official's comment, that next week's OPEC meeting might not do enough to ease the shortage that has driven prices up lately.


Bridge Commodity Research Bureau Index

fell to 224.51 from 224.99.

Gold for August delivery at the


rose to $289.10 an ounce from $286.40.

To view TSC's economic databank, see:


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