July 15, 1999


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Market Data as of Close, 7/14/99:

o Dow Jones Industrial Average: 11,148.10 down 26.92, -0.24%

o Nasdaq Composite Index: 2,818.13 up 39.90, 1.44%

o S&P 500: 1,398.17 up 4.61, 0.33%

o TSC Internet: 657.20 up 4.10, 0.63%

o Russell 2000: 461.46 up 3.35, 0.73%

o 30-Year Treasury: 90 24/32 down 2/32, yield 5.908%

Companies in Today's Bulletin:

Apple (AAPL:Nasdaq)

Advanced Micro Devices (AMD:NYSE)


Intel (INTC:Nasdaq)

In Today's Bulletin:

o Semiconductors: Losing Money and Its President, AMD Will Try Athlon
o Wrong! Dispatches from the Front: Raving Madmen
o Evening Update: Apple Trounces Estimates; AMD Beats Numbers, but Loses Prez; McKesson HBOC Restates Results
o Bond Focus: Bonds Frown at PPI, Retail Sales and Drift Lower

Also on

Eye to the Keyhole: Drawing the Line at Value Line

While the CEO fights Web posters and her twin brother, her company's Digital Age presence seems to be fading.

The TaskMaster: Intel-Shorting Hedgie Sticking to Guns That Fire Blanks

Further examples of how not to play an earnings surprise. Plus, your thoughts on financial TV (poor Terry Keenan).

Mutual Funds: Jacob Lays Out Plans For New Internet Fund

The no-load fund will launch this summer and follow the same concentrated approach as his old fund.

Europe: The Anglo File: Cable & Wireless, MediaOne Find Zero Buyers for One2One

German telco Mannesmann says One2One's price tag of $17.5 billion is too high. Unless the price drops, an IPO could be imminent.

Semiconductors: Losing Money and Its President, AMD Will Try Athlon


Marcy Burstiner

Staff Reporter

SAN FRANCISCO -- It's amazing that even after dishing out a dire

preannouncement last month,

Advanced Micro Devices

(AMD) - Get Report

can still manage to pull even more bad news out of its hat.

On a conference call Wednesday to report second-quarter results, chairman and CEO Jerry Sanders announced the resignation of Atiq Raza -- AMD's president, chief operating officer and chief technical officer -- for "personal reasons." Raza is the man largely credited for bringing to the company the K6 microprocessor.

The announcement shocked investors who regularly trade news via message boards. While

Silicon Investor

had 11 postings on its AMD board in the hour prior to the announcement, 44 messages were posted in the hour immediately after. One wrote only this: "stunned silence."

"AMD's return to profitability depends entirely on the success of the Athlon microprocessor." -- AMD CEO Jerry Sanders.

BancBoston Robertson Stephens

analyst Dan Niles said the resignation came as news to him as well. "That was definitely surprising, and I know Atiq pretty well," he says. "I have no knowledge on why he is leaving."

The news comes at a time when


(INTC) - Get Report

is hurting AMD so badly with price cuts on the low end of the PC chip market that Sanders has all but given up on the K6 family of processors. Raza is also leaving just as the company is shipping to customers its one hope for glory -- the new Athlon processor, also known as the K7, designed for high-end PCs that many in the industry say is superior in design to anything Intel currently produces.

Sanders said the company is shipping "hundreds of thousands" of the Athlon this quarter, which will sell at prices that range from $323 for a 500 megahertz chip to $699 for the 600 MHz version. If it can sell as many as it can produce, the chip promises to be a cash cow.

The company sold 3.7 million K6 chips in the second quarter at an average selling price of $67 to produce microprocessor revenue of about $248 million. This quarter, the K6 will carry an ASP in the $50 range, Sanders predicted. To generate that much money with ASPs of $400, the company would need to sell only 620,000 Athlon chips. On the call, Sanders said that AMD could easily produce over a million Athlon chips in the fourth quarter.

Sanders has

boasted in the past about the company's ability to produce chips, then failed to deliver on promised productivity. And even if AMD can shoot off super-fast Athlon chips out of its plant, the question is how fast they will sell. Even Sanders, who has not hesitated in the past to make warm and fuzzy predictions, wouldn't venture to predict demand levels.

"It is just a big unknown," Sanders said.

It's all or nothing now. "We won't fight a price war we can't win," Sanders said. "AMD's return to profitability depends entirely on the success of the Athlon microprocessor in the marketplace and the revenues it can generate."

For the company to be profitable, it needs to generate $500 million in sales each quarter, and that won't happen, Sanders admitted, until early 2000 at the earliest.

So what can AMD investors hold on to? Well, the second-quarter loss of $162 million was narrower than the loss of $200 million Sanders predicted on June 23. And at a loss of $1.10 per share, it came in 16 cents better than the $1.26-per-share loss predicted by

First Call


Niles also points out that Raza's resignation came after the Athlon's debut, and Raza said he would continue to work with the company in some undefined capacity. "Atiq owns a lot of the company," he said. "I'm sure he wants the stock to do well. The resignation came after the Athlon is out and already shipping.

Niles said he's waiting to see how well the Athlon does. "I think the K7 will be good for the company," he said.

Still, he said he has no plans to change his hold rating on the company any time soon. (BancBoston has no underwriting relationship with AMD.)

Wrong! Dispatches from the Front: Raving Madmen


James J. Cramer

Right about now every day,

Jeff Berkowitz

and I go over our nemeses. For us that means kicking ourselves. I think this part of the day might have driven my wife out of the business. She couldn't take it. But Jeff and I are masochists, so we keep up the terrible tradition.

So, I will let you listen in to the rantings of a couple of competitive hedge-fund madmen.

"Hey, stupid, why did you sell the

Texas Instruments

(TXN) - Get Report

?" Jeff asks.

"For the same reason you got panicked out of the



, moron," I retort. Now we are into the volley.

"Hey, great job blowing out of the


(AMAT) - Get Report

when I love it." Nothing like leaving four big ones on the table." Nice passing shot, Jeff.

"Not as good as your super decision to load up the boat on


(ORCL) - Get Report

ahead of the boring

Morgan Stanley

meeting," I smash back. No way he can return that one.

"At least I didn't go on TV and say I liked



and then watch it go down a buck, while the rest of the banks are doing fine."

Game, set, match. Berko.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Chase Manhattan Bank. 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: Apple Trounces Estimates; AMD Beats Numbers, but Loses Prez; McKesson HBOC Restates Results


Heather Moore

Staff Reporter

Shares of


(AAPL) - Get Report

slipped to 55 1/2 in after-hours trading following a regular close of 55 15/16 despite a strong third-quarter earnings report. The


maker earned 69 cents a share, beating the 19-analyst

First Call

estimate by a nickel and moving ahead of the year-ago 65 cents. The company also said it will buyback $500 million in stock.

previewed Apple's report earlier today.

In other earnings -- or lack thereof -- news,

Advanced Micro Devices

(AMD) - Get Report

posted a second-quarter loss of $1.10 a share, 16 cents narrower than the 16-analyst forecast but wider than the year-ago loss of 45 cents. The company also said its president and COO, Atiq Raza, resigned. Chairman and CEO W.J. Sanders will temporarily take on Raza's duties.

took a closer look at the

resignation earlier today.

McKesson HBOC

(MCK) - Get Report

cut earnings from continuing operations for fiscal 1999 by $152.2 million, or 53 cents a share. For 1998, the company lowered earnings by $25.8 million, or 9 cents a share; for 1997, it lowered earnings by $13.5 million, or 5 cents a share. McKesson lowered its revenue for the last three fiscal years by a total of $327.4 million. The revisions come after the troubled health-care management firm reviewed accounting practices at

Healthcare Information Technology Business

, formerly HBO, which it recently acquired.

McKesson also said the

Securities and Exchange Commission

and the

U.S. Attorney's Office

are investigating the company. And it also said its first-quarter earnings will "fall substantially short" of estimates of 49 cents a share. And also that it's jumping off a cliff and ending it all. (Just kidding about that last one.) In after-hours trading, McKesson HBOC shares traded at 30 7/8, down from a regular session close of 32 1/2.

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

Earnings/revenue reports and previews



said it sees second-quarter earnings of 4 cents to 7 cents a share, which would be below the five-analyst estimate of 17 cents. The company, which made 19 cents in the year-earlier period, said its U.S. training operations were hurt by a slowdown in the second half of the quarter.

Glenayre Technologies


said it sees a second-quarter loss of $10 million to $15 million, below estimates. The company, which did not provide per-share forecasts, also said it expects to take a quarter restructuring charge of $70 million to $80 million. Glenayre blamed slow paging business trends for the warning.

LandAmerica Financial


said it sees second-quarter earnings of 78 cents to 88 cents a share due to a shift in revenue mix to the company's lower-margin agency business. The two-analyst view called for $1.27 vs. the year-ago $1.47.

Network Equipment Technologies


reported first-quarter earnings of 16 cents a share, topping the year-ago 13 cents. The two-analyst forecast called for a loss of 8 cents. The company also announced reorganization plans that involve the downsizing of senior management and other employees.

In other earnings news:

Mergers, acquisitions and joint ventures



said it ended merger talks with

Residential Funding

, a unit of

General Motors'

(GM) - Get Report

General Motors Acceptance




said it was thinking about acquiring

AMI Leasing

, a unit of


(F) - Get Report

. Financial terms of the possible deal weren't disclosed.



said it hired

Morgan Stanley Dean Witter

to explore strategic alternatives. The company said its majority shareholder,


, is refocusing its strategy on companies which operate totally on the Internet.

Offerings and stock actions

Credit Suisse First Boston


Efficient Networks'

(EFNT:Nasdaq) 4 million-share IPO top-range at $15. The company is a high-speed DSL equipment developer based in Dallas.



(BA) - Get Report

said it reached an agreement with


to jointly develop a $173 million reusable unmanned space plane called the X-37.

Bond Focus: Bonds Frown at PPI, Retail Sales and Drift Lower


David A. Gaffen

Staff Reporter

A rally just wasn't in the cards today.

Treasury market folks started the day with the mindset that

Monday's rally cannibalized whatever euphoria today's

Producer Price Index


retail sales

reports might have generated. And while the headline figures were certainly friendly for the bond market, economists said that what lies underneath isn't comforting enough to shift the interest-rate outlook to something more positive.

Bonds initially popped higher on the meager 0.1% increase in June retail sales and the 0.1% decrease in the overall June PPI and 0.2% decrease in the core PPI (which excludes food and energy prices). At one point, the 30-year Treasury bond rose 7/32, but the gains didn't take, and the market spent the balance of the day drifting with the wind. Lately the 30-year Treasury bond was down 4/32 to trade at 90 24/32. The yield rose 2 basis points to 5.92%.

Plus, "there's a hesitancy to push

bond prices significantly higher in the face of a more important set of stats tomorrow," said Bill Sullivan, chief money-market economist at

Morgan Stanley Dean Witter

. He's referring to the June

Consumer Price Index

, a key indicator of inflation, released tomorrow at 8:30 a.m. EDT.

Today's key inflation indicator, the PPI, which measures inflation at the wholesale level, didn't give the market lasting solace because of sharp increases in the intermediate and crude stages of production -- which simply refers to earlier stages of production than finished goods, which the market pays the most attention to. While the core PPI for finished goods declined 0.1%, prices for core intermediate goods rose 0.4%, following a 0.2% increase in May. But on a year-over-year basis, intermediate prices are still falling at a 0.5% rate (compared to a negative 1.8% a year ago).

William Quan, senior economist at

Aubrey G. Lanston

, said these price increases are worrisome because they could eventually result in price inflation for finished goods. "The timing, and how much it leads to a rise in finished goods, is subject to interpretation," said Quan. "The lag may be longer than it used to be, but a peak in intermediate and core prices usually suggests inflation on finished goods will pop up somewhere down the line."

Sullivan was less concerned with these increases, calling the bond market's fears of price inflation "misplaced at this time." He noted that some components of the intermediate index -- such as those related to housing construction -- don't have a counterpart in the finished goods index (the PPI doesn't factor the price of a house). In addition, he said the competition for products is greater at the finished stage, making it harder to pass on price increases. Temporary shortages and other factors make the crude and intermediate components volatile (plywood prices rose 9.7% in June), he added.

The retail sales report was also a mixed grab bag. Sales rose just 0.1% in June, including a 1% decline in auto sales, but sales for May were revised upward to 1.2% from 1%. Excluding autos, sales were up 0.4% in June, in line with consensus estimates as reported by


. But economists say evidence of declining demand is trickling in -- sales of furniture and building materials has tailed off in the last few months. And while the evidence is anecdotal, Sullivan added that



is cutting back on the manufacture of sport utility vehicles this month in response to declining demand.

But "there's a great deal of skepticism as to whether consumers are ready to close their pocketbooks just yet," said Sullivan, explaining the veritable shoulder-shrug the bond market gave to this release.

John Lonski,

Moody's Investors Service

senior economist, said worries about what is yet to be explains the market's muted reaction as perpetual looking ahead. "Since those

PPI results were compiled we've had steep upturns by crude oil and a host of industrial metals," said Lonski.

The market generally places more importance on the CPI than the PPI because it's a broader measure of prices, including the prices of services and goods. The forecast for tomorrow's release is for a 0.1% increase in the overall CPI, and 0.2% in the core CPI.


Philadelphia Fed Index

for July is also released tomorrow. This timely indicator of regional manufacturing sentiment fell to 5.3 in June after hitting 21.1 in May and 26.2 in April.


Street Sightings

James J. Cramer will be chatting on Yahoo! at 5 p.m. EDT, Thursday, July 15. Register for Yahoo! Chat at: It's free!

Catch the premiere of on the FOX News Channel July 17! Join host Brenda Buttner and TSC regulars like Jim Cramer, Herb Greenberg and Dave Kansas. Saturdays at 10 a.m. ET and again on Sundays at 1 p.m. ET.

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