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daily06-22-99's DAILY BULLETIN

June 23, 1999


Market Data as of Close, 6/22/99:

o Dow Jones Industrial Average: 10,721.63 down 94.35, -0.87%

o Nasdaq Composite Index: 2,580.26 down 50.02, -1.90%

o S&P 500: 1,335.88 down 13.12, -0.97%

o TSC Internet: 576.92 down 17.59, -2.96%

o Russell 2000: 447.33 down 2.11, -0.47%

o 30-Year Treasury: 88 28/32, down 16/32, yield 6.060%

Companies in Today's Bulletin:

Compaq (CPQ:NYSE)

3Com (COMS:Nasdaq)

Network Appliance (NTAP:Nasdaq)

Ascend Communications (ASND:Nasdaq)

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TheStreet Recommends

In Today's Bulletin:

o Hardware & PCs: Compaq CEO Hunt Narrows to Two Candidates
o Wrong! Dispatches from the Front: If Honesty Were the Best Policy
o Evening Update: 3Com Meets Earnings Numbers but Slips on Revenue Forecast
o Bond Focus: Treasuries Take a Third Step Back

Also on

The Buysider: The Net Party Is Over

Our columnist returns with fresh perspectives on the Internet Valuation Sillies, the First Law of Internet Insularity and the Summer Dog Rule.

Herb on TheStreet: *Extra* Will Nvidia Be a Big Loser in Diamond-S3 Deal?

Parsing the recent regulatory filings for a clue.

Brokerages/Wall Street: IPO Pipeline Is Still Chock Full o' Nets

Huge first-day surges for Internet offerings may be a thing of the past, but there are still plenty of comers.

Silicon Babylon: Collaring a Profit

Paper wealth guys are quietly playing options to cash in.

Hardware & PCs: Compaq CEO Hunt Narrows to Two Candidates


Eric Moskowitz

Senior Writer




CEO search is down to two candidates, and the winner could be announced as early as mid-July, according to a person familiar with the situation.

The names of the candidates are still being kept under lock and key, but Compaq Chairman and acting CEO Benjamin Rosen is considering candidates from outside the PC industry, says the source, who requested anonymity. Expect a board meeting Wednesday to push the process into high gear.

Compaq watchers say to keep an eye on



Paul Otellini, an executive vice president and general manager of Intel's architecture business group.

Other candidates include Ed Zander, COO of

Sun Microsystems


, and Sam Palmisano,



head of global services. "Compaq has never set a time line for the search and doesn't comment on rumors or speculation," said a spokesman for Compaq. The possible candidates didn't immediately return calls seeking comment.

And then there's



COO Ray Lane, the perpetual candidate whose very mention in job-hopping contexts draws the ire of many Wall Streeters. Lane, who is out of the country this week, has said time and time again that he isn't going anywhere. He told an Oracle spokeswoman to repeat this stance Tuesday.

Rosen may be feeling intense pressure from shareholders to step aside. After he

ousted CEO Eckhard Pfeiffer nine weeks ago, Rosen was expected to spend at least until the end of summer to find a new CEO.

But he has to hurry since



is also looking to finish its CEO search, which is down to three candidates -- H-P Enterprise Computing Solutions CEO Ann Livermore and two external candidates -- according to


. There are so few qualified outsiders in circulation, it seems, that Compaq and H-P may be interviewing the same shallow pool of candidates.

"H-P and Compaq are very big ships, and the emerging executives out there would prefer to run smaller ships," says Daniel McKelvey, a money manager at

Forte Capital

. "Executives today prefer to have more control, fewer people watching over them and the opportunity to make more money over the long term. The Internet is basically taking the cream of the crop."

Rosen, who said

last week that Compaq would cut $2 billion in operating costs and take a large reorganization-related charge in the third quarter, didn't immediately return calls seeking comment.

Of course, Rosen could surprise the Street by installing someone from outside the tech sector. But Compaq investors probably wouldn't have the patience to wait for a Lou Gerstner-like CEO to learn the complexities of Compaq's tech culture.

Wrong! Dispatches from the Front: If Honesty Were the Best Policy


James J. Cramer

Wouldn't life be grand if we could just have the truth? Can you imagine how easy this game would be if we could just say, "The market sold off when

National Gift Wrap


Mutual Fund Corp.'s

head honcho, Ken Cramer, decided he had enough of the 'highflying' Nasdaq market and was stepping away?"

You know, something like this:

"Yep, that was me," said Ken, after watching the devastation in the NDX. "First, I bought a whole bunch of NDX puts. And then I blasted my whole portfolio to kingdom come. Just booted 'em right out the door."

Ken suggested that he did it because he wanted to have some peace of mind before he went to the Martha's Vineyard for the month of July. "I was up big in these names," said Ken as he boarded the 4:07 to the Massachusetts vacation spot. "I didn't want to have to worry about

Mister Softee





while I was on the beach in West Tisbury. Tough to get the paper up there and I don't know if I have a good phone line to check quotes and get information. Anyway, I want to have a good time. Better just to go flat for the summer."

Ken said he actually likes a lot of the stocks he sold, but when he saw how no one was stepping up the plate, he "got nervous" and "pressed the sell pedal to the floor."

He said he knew he should have given people warning, including his son, Jim, a hedge fund manager who was completely blindsided by the selling, "but how would I get those great prices if everybody knew about my selling beforehand?"


Random musings:

Cyclical hell or cyclical heaven?



just preannounced a better than expected quarter. Sure couldn't tell that from the stock today. A secret well kept!


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Microsoft and Cisco. 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: 3Com Meets Earnings Numbers but Slips on Revenue Forecast


Heather Moore

Staff Reporter



posted fourth-quarter earnings of 24 cents a share, 1 cent higher than the 25-analyst

First Call

view and ahead of the year-ago 18 cents. The company also approved a 15 million-share repurchase plan. But the networker's CFO said 3Com's revenue for the first and third quarter of 2000 is expected to come in below year-ago figures. Shares of 3Com slipped 1/8 to 31 3/8 in after-hours trading.

Network Appliance


will replace

Ascend Communications


in the

S&P 500

after Thursday's close. Lucent is acquiring Ascend.

Among other changes to S&P indices:

  • Best Buy (BBY) , an S&P MidCap 400 component, will replace AirTouch Communications (ATI) in the S&P 500 after Monday's close. Vodafone (VOD) is acquiring Airtouch, and received approval from the Federal Communications Commission for the planned $62 billion acquisition. Swift Transportationundefined will replace Best Buy in the mid-cap index.
  • Vulcan Materials (VMC) will replace Provident (PVT) in the S&P 500 after the close June 29. Transaction Systems Architectsundefined will replace Vulcan Materials in the mid-cap index. UNUM (UNM) is acquiring Provident.
  • Unitrin (UNIT) will replace Unisource Worldwideundefined in the mid-cap index after Friday's close. Georgia Pacific (GP) is acquiring Unisource.
  • DST Systems (DST) will replace Aliant Communicationsundefined in the mid-cap index on a date to be announced. Alltel (AT) is acquiring Aliant.



may buy



Internet assets, including





In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



recorded a third-quarter loss of 17 cents a share, narrower than the four-analyst outlook for a loss of 18 cents but wider than the year-ago loss of 9 cents.

Georgia-Pacific said -- thanks to the sustained pace of home construction and remodeling and improvements in its lumber business -- it expects to post second-quarter earnings of more than $1 a share. The 13-analyst outlook called for 89 cents vs. the year-ago 17 cents. Shares of the company were up 2 5/8 to 53 1/2 in after-hours trading.

H.B. Fuller


reported second-quarter earnings of $1.04 a share, beating both the five-analyst forecast for 97 cents and the year-ago 81 cents.



posted second-quarter earnings of 63 cents a share, 1 cent above the 10-analyst estimate and ahead of the year-ago 47 cents.

Vastar Resources


said it will take a $10 million charge in the second quarter to reflect dry hole costs.

Mergers, acquisitions and joint ventures

Alltel agreed to acquire

Liberty Cellular

for $600 million in stock.



announced plans to buy 41 grocery stores from



for an undisclosed amount. Albertson's is selling the stores as part of its pending merger with

American Stores


Newbridge Networks


agreed to acquire

Stanford Telecommunications


for $280 million in stock.

Offerings and stock actions

Morgan Stanley Dean Witter



(ARBA:Nasadq) 5 million-share IPO above range at $23. Ariba's software is used to automate purchasing of operating resources such as office supplies and computer products.

BancBoston Robertson Stephens



(GSPN:Nasdaq) 3.25 million-share IPO top-range at $15. The company is a developer of advanced digital subscriber line integrated circuits.


(INIT:Nasdaq) resumed plans for an IPO, which it expects to hit the Street around July 5.

Montana Power


set a 2-for-1 stock split.

TD Waterhouse's

(TWE:NYSE) 42-million share IPO priced top-range at $24. The initial offering for the company, the discount brokerage unit of



, originally was set for 32 million shares.


New York Federal Reserve


William McDonough

told the Money Marketeers of New York University that tightening monetary policy to prevent inflation can help U.S. growth as much as cutting rates has in the past. The central bank has to remain "vigilant," he told the group of Wall Street economists who gave McDonogh their Distinguished Achievement Award. The New York Fed president is a voting member of the Fed's rate-setting board, which meets June 29-30.

American Home Products


settled a wrongful death suit brought against it by the family of a Houston woman who died after using the "fen-phen" combination of diet drugs. Financial terms of the agreement weren't released.

BF Goodrich's


Aerostructure unit reached a new labor agreement with groups representing more than 1,500 California workers.



said it ended its contract to buy

Claircom Communications





Rogers Cantel


International Specialty Products


named Sunil Kumar president and chief executive. Kumar replaces President and COO Peter R. Heinze.

Bond Focus: Treasuries Take a Third Step Back


Elizabeth Roy

Senior Writer

Treasuries lost ground for the third session in a row following last Thursday's speech by



Alan Greenspan

, in which he all but announced that the central bank will raise short-term interest rates when it meets next Tuesday and Wednesday.

Analysts blamed the move -- which came in a quiet session containing no market-moving economic data -- on Fed-related ennui and on the corporate new-issue calendar. Already heavy, the corporate calendar put on additional weight today with the addition of a $3 billion

Fannie Mae


deal and a $500 million

Freddie Mac


deal. Corporate issuers are stampeding to market in hopes of arriving before interest rates go any higher. Unfortunately, their stampeding puts pressure on bond prices,


interest rates to go higher.

The benchmark 30-year Treasury bond finished the day down 15/32 at 88 28/32, lifting its yield 3 basis points to 6.06%. Shorter-maturity notes underperformed slightly (their yields rose a little more).

The fact, or at least the firmly held opinion, that the Fed is on course to raise the fed funds rate from 4.75% to 5% can't be underestimated as a reason why the Treasury market is having a hard time, market watchers said.

"We had a relief rally after

Greenspan's talk because it was not as aggressive as some had feared, so some shorts covered and some buyers who had been hesitating stepped in," said Kevin Logan, senior market economist at

Dresdner Kleinwort Benson

. Before Greenspan spoke, there was widespread fear that he would put the markets on notice that the Fed was worried about the inflation outlook, and to expect several rate hikes in quick succession. As it was, people were left wondering how sure they could be that the Fed will raise rates even one additional time.

"But," Logan continued, "you can't expect the market to improve with the Fed on a path toward tightening monetary policy."

At least not until it reaches what market participants are defining as the top end, in yield terms, of the market's current trading range. For the long bond, the line lies somewhere around 6.10%. Two Fridays ago, the long bond closed at its highest yield level in a year and a half, 6.16%.

Bounded on the low yield end by 5.90% or so, that trading range is probably good until the Fed meeting, when traders will be anxious to see whether the monetary policymakers, in their statement that accompanies policy changes, announce any change in their policy bias.

At their last meeting on May 18, the policy committee

announced that they'd shifted from a neutral bias to a bias in favor of a higher fed funds rate. This time, bond market mavens want to see whether they keep the tightening bias or revert to neutral. That'll help clear up the likelihood of additional tightenings. "If they maintain the bias it would certainly be bearish for the market, although I don't think it would be a huge down move," said David Ging, Treasury market strategist at

Donaldson Lufkin & Jenrette


Beyond the Fed statement, players are looking to the June

Purchasing Managers Index

a week from Thursday and the June

employment report

a week from Friday to provide economic data that may give the Fed a clear reason to either deliver or refrain from additional rate hikes.

In the meantime, supply concerns are dominant. The weekly corporate calendar swelled to $11 billion today with the addition of the Fannie and Freddie deals,

Thomson Global Markets

senior analyst John Atkins said, compared with an average of $6.2 billion a week over the last four. And while many of those deals aren't firm, there are already at least $3 billion of firm deals on next week's calendar, a very large number so far in advance. In addition, the Treasury's monthly auction of two-year notes takes place tomorrow, which Ging said will probably hamper prices at the short end at the yield curve for the next couple of days.


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