daily06-15-00 - TheStreet


Publish date:

TheStreet.com's DAILY BULLETIN

June 16, 2000


Market Data as of Close, 6/15/00:

o Dow Jones Industrial Average: 10,716.94 up 28.99, 0.27%

o Nasdaq Composite Index: 3,814.42 up 17.01, 0.45%

o S&P 500: 1,475.51 up 4.97, 0.34%

o TSC Internet: 889.45 down 9.23, -1.03%

o Russell 2000: 507.50 down 2.17, -0.43%

o 30-Year Treasury: 104 12/32 down 12/32, yield 5.927%

In Today's Bulletin:

o Telecom: Bloom Is Off the Qualcomm Rose as Stock Continues to Wither
o Wrong! Dispatches from the Front: A Net Vet Turns Up His Nose
o Stocks to Watch: Stocks to Watch Friday: Red Hat, Adobe, Boeing, Perot Systems
o Bonds Primer: Mixed Economic Data Help Treasuries Fight Back to Even

Also on TheStreet.com:

Brokerages/Wall Street: Kansas City Southern to Spin Off Financial Services Unit

The aim is to separate the firm's railroad and financial services units into two publicly traded companies.


SiliconStreet.com: Palm Bites Hand That Critiques It

Adam shares an email from Palm regarding Tuesday's column. P.S. It's


not wireless nirvana.


Telecom: Bloom Is Off the Qualcomm Rose as Stock Continues to Wither


Scott Moritz

Staff Reporter

6/15/00 6:50 PM ET

Will the real


(QCOM) - Get Report

please stand up?

Last year, investors suspended any doubts they may have had about Qualcomm's patented wireless technology. Enthusiastic backers drove the stock to a 26-fold gain, marking the best-ever one-year performance by an

S&P 500

stock and making Qualcomm a name to watch for 2000.

Six months later, though, the doubt is back. With Qualcomm some 69% off its high, analysts are taking a harder look at the challenges standing between Qualcomm and its widely anticipated (by bulls) wireless-world domination. In short, Wall Street is beginning to recognize, as


highlighted last year, that code-division multiple access, or CDMA, is far from a shoo-in to become the next-generation wireless standard.

It's the tale of two Qualcomms, say observers. Somewhere between the euphoric run-up of last year and the sobering slide this year lies a profitable company that still makes chips and collects royalties on a technology that is destined to play a significant role in the rapidly growing wireless industry. The stakes are so great for investors on both sides of the Qualcomm equation that equilibrium is fleeting, but clearly the momentum that took the stock to such heights last year is now working against it.

Asian Flu

Thursday's action, which saw Qualcomm shares plunge 13% as two brokerages dimmed their outlooks on the stock, illustrates Qualcomm's lightning-rod quality. Noting a slowdown in chip sales in Korea, still-unanswered questions about the China market and a worrisome 6.5% stake in the

troubled satellite phone venture



, two analysts reduced their profit estimates.

Qualcomm slides after stellar 1999

Source: BigCharts

Bear Stearns

analyst Wojteck Uzdelewicz cut his 2001 earnings estimate to $1.30 a share from $1.40, maintaining his attractive rating. Meanwhile,

Chase H&Q

analyst Edward Snyder slashed his price target to 50 and cut 22 cents from his fiscal 2001 EPS estimate, to $1.27 from $1.49. Snyder maintains his market-perform rating, and Chase H&Q has no banking ties to Qualcomm.

Snyder's price-target action garnered special notice on Wall Street, coming as it did just six months after another high-profile analyst move. In December,


analyst Walter Piecyk set his now-

infamous $250 split-adjusted target for Qualcomm, which subsequently hit its all-time high of 200 before trending sharply downward this spring.

Back in Line

"I think the valuations had gotten away from the fundamentals in terms of the projections made by some of my brethren on the Street," says Snyder, who hasn't changed his rating on Qualcomm since he initiated coverage in July, though this is the first time he has issued a price target. "I think things are coming back into line as the fundamentals are informing the stock price."

Snyder based his target partly on his assessment of the

uncertainties facing Qualcomm as it seeks to gain a foothold in Asia. "We always kind of suspected that China would not deploy CDMA because GSM had such a big leap on them," says Snyder, referring to Qualcomm's CDMA and the more widely used global systems for mobile communications standard. "And if you are buying anything with a phone, you are buying mobility. And if can't roam on to other

incompatible systems you typically won't see the growth."

High Profile
Qualcomm's 1999 jump

Growth in Asia is important to Qualcomm's prospects, because the company's CDMA technology is an also-ran when it comes to current market share. Without access to fast-growing markets in Asia, Qualcomm's CDMA will be unlikely to take hold as the global standard.

Currently, CDMA has roughly 10% of the global wireless market, while the rival global systems for mobile communications, or GSM, and time-division multiple access, or TDMA, standards share a roughly 70% slice of the pie. And with the wireless market growing so robustly, especially overseas, CDMA is expected to gain only 5 percentage points in the next three years, according to the

Yankee Group


Not Discouraged

Still, Qualcomm's many fans aren't discouraged.

"We feel this is a relatively inexpensive technology stock with an incredibly important intellectual property position," says Charles Marlio, an analyst with

Baldwin Brothers Investment Advisors

, a private investment firm in Marion, Mass., that manages several positions in Qualcomm. "This is the hangover after the overenthusiastic momentum that developed late last year."

"Smart analyst say going to $1,000 - time to sell. Smart analyst say going to $50 -- time to buy," wrote


on a Qualcomm message board at


Qualcomm's technology "is going to be a very major platform for doing business over the next 10 to 20 years at the very least," Marlio concludes.

Nice view, if you can get it. But you can't help but think that's got to be a little like trying to prevent seasickness by staring at a fixed point on the horizon as your boat gets tossed in a storm.

Wrong! Dispatches from the Front: A Net Vet Turns Up His Nose


James J. Cramer

6/15/00 2:09 PM ET Boy, are people having a field day nailing Net companies. I heard someone pile on CNet (CNET) - Get Report today for being associated with NBC Internet (NBCI) ! Now there's a capital crime. Fatbrain.com (FATB) missed the number yesterday and it got clipped a bit. iVillage (IVIL) seems like it's headed to five. Salon's (SALN) fighting -- and failing -- to get back to 2.

Man is it nasty.

I wish I could be more bullish, but it was difficult to defend the group from an unlikely assaulter: Brian Salerno from

Munder NetNet

, who was also on my panel yesterday. Salerno hates 'em all. He was the biggest Net bear on the panel, even choosing to knock my little




Salerno didn't have a single good word to say about this group, acknowledging that he's not buying any of them and doesn't plan to. He put the knock on 'em all!

I found myself interrupting him and saying it can't be all that bad. I spoke up for



, but he didn't seem too interested even with that further-from-the-low-list-than-others choice.

Of course, he was bullish as all get out on the Net infrastructure names. Frankly, I find them hard to be in if the dot-com world is falling apart, although I understand that the Old World folks are hiring these guys to build out their Net plays.

But when the man from Munder hates the group -- a group his firm put on the map -- that's saying something. I just wish I knew what it was saying!

Random musings: Bought the

Texas Instruments

(TXN) - Get Report

. Couldn't take not having it ... Could there be outages and downtime when we make

the big switch to the new, free




? Anything can happen. Apologies in advance if it does. And believe me, if i could fix it, I would be there -- but as


says, "A man has to know his own limitations."

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long priceline.com, Yahoo! and Texas Instruments. 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


Stocks to Watch: Stocks to Watch Friday: Red Hat, Adobe, Boeing, Perot Systems


Eileen Kinsella

Staff Reporter

6/15/00 6:40 PM ET

Linux provider

Red Hat


posted a first-quarter loss of 2 cents a share, narrower than the four-analyst expected loss of 4 cents and the year-ago loss of 8 cents a share.

Adobe Systems

(ADBE) - Get Report

also topped estimates. The graphic design software maker posted second-quarter earnings of 51 cents a share, better than the 12-analyst estimate of 48 cents. The year-ago earnings of 35 cents included a pre-tax restructuring charges of $15.3 million.

Looking forward, Adobe said it sees 25% revenue growth in each of the third and fourth quarters of 2000. It also named Murray Demo as CFO from interim CFO.

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


(BA) - Get Report

said it will sell a military jet parts fabrication business employing 1,700 in St. Louis. The 1.7 million-sq. ft. facility is operating at 40% capacity as Boeing winds down work on its aging F-15 fighter line. Boeing wants to sell it as part of a two-year-old streamlining program.

Boeing also announced it has been awarded an $8.96 billion U.S. defense contract to build 222 new F/A-18E/F jet fighters for the


over the next five years, the



Back to top

Earnings/revenue reports and previews



said it sees a negative impact on third-quarter results because of weakness in the British pound.

Perot Systems

(PER) - Get Report

said 2000 diluted earnings-per-share, excluding items, may not meet estimates. The current eight-analyst estimate calls for 70 cents a share. The company also said it sees flat full-year 2000 revenues compared with those of 1999.



said it is lowering its profit expectations for the second quarter and now sees earnings of 77 cents to 82 cents a share. The current 12-analyst estimate is for 88 cents a share. The company cited lower asset quality and said it will take a $70 million loss provision.

Back to top

Bonds Primer: Mixed Economic Data Help Treasuries Fight Back to Even


Elizabeth Roy Stanton

Senior Writer

6/15/00 5:25 PM ET

A stonger-than-expected report on the industrial sector knocked the Treasury market lower this morning, but later in the day, surprisingly weak readings from two relatively minor economic reports helped the market recoup its losses.

After trading down as much as 11/32 in early action, the benchmark 10-year Treasury note ended up 1/32 at 103 9/32, trimming its yield half a basis point to 6.045%. The 10-year note outperformed both shorter-maturity issues and the 30-year bond. The bond ended down 8/32 at 104 16/32, lifting its yield 1.8 basis points to 5.927%.

At the

Chicago Board of Trade

, the September

Treasury futures contract lost 5/32 to 97 4/32.

The initial damage to Treasuries came from the

industrial production

report for May. Industrial production rose 0.4%. Not a large gain by historical standards, but economists polled by


had forecast a drop of 0.3%, on average.

Meanwhile, the capacity utilization rate, part of the same report, held steady at 82.1%. It had been expected to decline to 81.6%.

The results flew in the face of earlier data indicating that economic growth is slowing -- specifically, the May

employment report

, which detected a loss of 116,000 private sector jobs, the first decline since January 1996 and the largest since November 1991.

Bond investors are anxious to see economic growth slow, because they fear that the above-trend growth of the last several years threatens to ignite inflation.

The industrial production report "raises question marks about the accuracy of the May payroll report,"

Miller Tabak

bond strategist Tony Crescenzi wrote on his Web site, Bondtalk.com. "Because production and employment growth tend to go hand-in-hand, one report or the other is flashing a misleading signal. Although the answer is probably somewhere in-between, the production report suggests at the very least that payroll growth was not nearly as weak as the last report suggested."

Ken Mayland, president of

ClearView Economics

, agreed that the IP report probably takes the more accurate measure of the economy. "Which figures are right? I would put my money on the IP data," Mayland wrote. "And this suggests to me that measured employment could come roaring back when the jobs data for June are released."

Later in the session, however, the Treasury market got some minor indications that perhaps the IP report had overstated the case.


Philadelphia Fed Index

fell much more than expected in June, to 1.7, the lowest reading since November 1998, from 20.2 in May.

And the

Housing Market Index

fell to 58 in June, the lowest since November 1997, from a revised 62 in May.

It was a fifth session in a row that the bond underperformed shorter-maturity Treasuries. This relates very specifically to the shift in expectations about the

Fed over that period, market analysts say. The majority has gone from believing that another rate was likely at the

Federal Open Market Committee's next meeting on June 27-28, to believing that a June hike is unlikely. "With the Fed on hold, there's less reason to be short twos" -- two-year notes, which are much more sensitive to changes in the

fed funds rate, said Kevin Logan, senior market economist at

Dresdner Kleinwort Benson


At the same time, after having run up in price very sharply over the last six months because of government initiatives to reduce the supply of the issue, the 30-year bond has begun to surrender some of its liquidity premium, said Mike Franzese, a trader at

Zions First National Bank

. In other words, with 30-year bonds falling into such short supply that trading them becomes a difficult exercise, the premium the bonds command for their scarcity is being partially offset by a discount for illiquidity. "People aren't going to trade it; it's going to be toxic waste," Franzese said.

Market rumors which surfaced last week that the Treasury Department will stop issuing the 30-year bond this year or next year are responsible for the emergence of the illiquidity discount, Franzese said.

Economic Indicators

In other economic news,

initial jobless claims

fell in the latest week to 296,000 from a revised 312,000, the highest level of the year.

Currency and Commodities

The dollar fell against the yen and gained against the euro. It lately was worth 106.54 yen, down from 106.62. The euro was worth $0.9541, down from $0.9577. For more on currencies, please take a look at


Currencies column.

Crude oil for July delivery at the

New York Mercantile Exchange

rose to $32.95 a barrel from $32.78.


Bridge Commodity Research Bureau Index

fell to 224.42 from 224.71.

Gold for August delivery at the


fell to $292.10 an ounce from $294.20.

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