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TheStreet.com's DAILY BULLETIN

July 20, 1999



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Market Data as of Close, 7/19/99:

o Dow Jones Industrial Average: 11,187.68 down 22.16, -0.20%

o Nasdaq Composite Index: 2,830.29 down 34.19, -1.19%

o S&P 500: 1,407.65 down 11.13, -0.78%

o TSC Internet: 616.76 down 21.97, -3.44%

o Russell 2000: 461.37 down 3.89, -0.84%

o 30-Year Treasury: 90 29/32 down 2/32, yield 5.894%

Companies in Today's Bulletin:

Sunrise Technologies (SNRS:Nasdaq)

Microsoft (MSFT:Nasdaq)


In Today's Bulletin:

o Biotech/Pharmaceuticals: Sunrise Tech Takes Critics to Court
o Wrong! Rear Echelon Revelations: Selloffs Happen
o Evening Update: Both Microsoft and IBM Top Estimates
o Bond Focus: Even Forex Fireworks Can't Distract Treasury Traders

Also on TheStreet.com:

Semiconductors: Intel's Eye Wanders Away From Rambus

The chip giant sent Rambus shares tumbling when it said it would evaluate an alternative to Rambus' memory-chip designs.


Wrong! Rear Echelon Revelations: All Quiet on the Earnings Front

Things are looking good, pending conference calls.


Energy: Unocal Scrambles to Turn Dry Holes Into Discoveries

Analysts are not pleased with Unocal's exploration results, and want the company's sizable investments to translate into oil finds.


Tech Savvy: Qwest v. 2.0: Starting All Over Again With U S West

Maybe, just maybe, Joe Nacchio does know what he's doing after all.


Biotech/Pharmaceuticals: Sunrise Tech Takes Critics to Court


Jesse Eisinger

Senior Writer

You might think that developing a product, trying to get it approved and then selling it would be enough. But

Sunrise Technologies


apparently wants its pound of flesh, too.

The company doesn't like what some people on Wall Street have been saying about it, so it's taking them to court. Last week, it filed to get an emergency injunction and restraining order against

Sturza's Institutional Research


Avalon Research

, two boutique firms that have written sharply critical research reports on the surgical laser company. It wanted to have them immediately stop writing about the company and sharing their investment opinions with clients. That was thrown out by a judge in Northern California District Court Friday.

Despite its lack of success in court so far, Sunrise isn't giving up. Late last week, it sued both firms for defamation as well.

The aggressive legal actions illustrate the lengths some companies will go to shut up critics. Increasingly companies are seeking to identify and pursue critics, whether on Wall Street or on Internet message boards. Even if a suit is groundless, legal action can cost thousands of dollars in legal fees and be a time-consuming distraction.

"Litigation as a form of attacking adverse analysis is not entirely new.

But I think it's quite rare. The concern a public company has is that you draw more attention to the thesis being expounded," says Karl Groskaufmanis, a securities lawyer and partner at

Fried Frank Harris Shriver & Jacobson

, which isn't involved in the case. "If what's being issued is purely opinion, my own view is that it's not productive to go suing analysts. The best antidote to a research report you don't like is to perform well and prove them wrong."

Sunrise is a Fremont, Calif., company that's developing a surgical laser for farsightedness. As the company comes up for a

Food and Drug Administration

advisory panel meeting Thursday, it has caught the attention of short-sellers who think even if the FDA approves its technology, Sunrise is unlikely to be successful on the market. While Sunrise's stock has done extraordinarily well this year (up 180%), over the last several days, it has weakened. The stock climbed 1 5/16 to 17 7/8 Monday.


has taken a look at its prospects in a couple of earlier


Neither Sunrise nor its law firms, Chicago-based

Holleb & Coff

and San Francisco's

Duane Morris & Hecksher

, returned calls seeking comment. On Thursday, Holleb & Coff lawyer Howard Hoffmann said he would get back to


with extensive comments, but didn't. He did say: "We resent the manipulation of the stock through issuing reports and then taking major positions in the stock. Tell me that's not a crime."

Evan Sturza, who heads Sturza's Institutional Research, and Avalon declined to comment on the lawsuits or on the firms' current positions in Sunrise. Both firms have investment arms that can take trading positions, long and short.

Steven Frankel, of

Frankel Rudder & Lowery

, who represents Sturza's, says the suits are meant to quiet the critics: "There's no question, in my opinion, that they are trying to back Evan and Avalon off and turn the tables."

Another element of the case is that several partners at Holleb & Coff have ownership stakes in Sunrise Technologies, according to a June 16 filing with the

Securities and Exchange Commission

. The filing, an amendment to a secondary offering document, reads: "We would call your attention to the fact that Eric M. Fogel, a partner of this law firm, also acts as the secretary of the company and certain of our firm's partners, including Mr. Fogel, own shares of the company's common stock."

Holleb & Coff lawyer Hoffmann didn't respond to an extensive email inquiry to discuss the issue.

Says Fried Frank's Groskaufmanis: "Particularly in high-tech and development stage companies, the practice of giving stock for fees is by no means unprecedented and it seems to be becoming more common. It can create a conflict of interest, which is why it's disclosed." A potential benefit, he says, is that such compensation can align the lawyers' and the client's desires better.

Potential conflicts of interest notwithstanding, Frankel doesn't think the suits have a chance: "I don't see it at all. The First Amendment says that if you say something and, if on a good-faith basis, you believe what you're saying, you're covered."

Wrong! Rear Echelon Revelations: Selloffs Happen


James J. Cramer

Greed can be the enemy of clear thinking. This afternoon I got a frantic email from someone who was worried about a big drop in




I am not in the business of reassuring anyone, or

holding anybody's hand. But I am willing to interject some common sense when it is called for. In this case Exodus was up huge until Thursday of last week. It ramped all the way to 148. It is perfectly normal for all but the most ballistic of stocks to have a pullback of the kind this stock is having.

The interchange, however, caused me to take a moment and go over how the market works, particularly for you newer, and in some cases, more spoiled readers. The most important concern when I look at a stock is not what it is selling for or what it might do, but

where it has come from


(This point is something that chartists and I agree on, because I am always looking for proper entry points.)

I think the Exoduster who emailed me was greedy in


taking something off the table when it was higher. Here is a case where 30 points were left on the table. Neither commissions nor the taxman can hurt you as bad as the 30 points that were missed.

If a stock has had a giant run ahead of good news, you can expect that people will take profits on that good news. That's what trading discipline dictates. Let me give you an example. Let's say Jeff and I decide we want to buy


(IBM) - Get Report

because we think it is going to have a good quarter. After it reports, we are going to sell it because we bought it for the quarter only.

(If we viewed it as an investment, things would be different. We decide in advance of buying something, however, whether it is a trade or an investment, even going so far as to list stocks as T's on our sheets so we don't turn a T into an investment.)

Had IBM run up huge in advance of that quarter, we might have even been tempted to take profits ahead of the quarter, for fear that whatever good news is out there is "already in" the stock. The chart is what tells you whether good news is already in.

Unfortunately, there is no simple science to analyze this stuff, even though we all desire a formula to make things magically easy. We can't say, if IBM is up 10 points in the last three days, we can therefore expect it to go down five if it reports 88 cents, and up five if it reports $1.02. It is all psychology.

Our experience in these situations is that we should expect stocks to sell off unless they exceed even the biggest bull's judgment

if the stock has run

. If the stock hasn't run (e.g.


(INTC) - Get Report

, which was still where it was at the beginning of the year despite the market being up 20%), it has a better chance of moving up regardless of the quarter.

And if it is down big ahead of the quarter, then we could say that the risk is taken out of the stock and we might even expect a pop on bad news.

So, before you jump to a conclusion about a stock's action based on a given quarter, ask yourself whether the stock, by its trajectory, has priced in a move. And be forgiving of a stock for pulling in big-time after a giant push upward. But don't be forgiving of yourself if you bought it for a trade ahead of that colossal move and didn't take anything off the table when you had a chance.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long IBM and Intel. 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: Both Microsoft and IBM Top Estimates


John J. Edwards III and

Heather Moore

Staff Reporters

Redmond, Wash., software giant


(MSFT) - Get Report

beat earnings estimates in the fourth quarter, as usual, but warned of a revenue slowdown for fiscal 2000.

Microsoft earned 40 cents a share in the quarter ended June 30 from $5.76 billion in revenue and net income of $2.2 billion. The company's 40 cents was 4 cents better than the 26-analyst

First Call

forecast of 36 cents and 60% higher than the year-ago 25 cents. For the full year, Mister Softee earned $1.42, or net income of $7.79 billion, up from 84 cents a share in fiscal 1998.

CFO Greg Maffei attributed the record fiscal-year revenue and income to strong consumer demand for Windows and Office products as well as accelerating demand for Windows NT Server, SQL Server and Exchange Server. However, he noted that "in fiscal 2000, our revenue growth rates will decline due to slowing PC demand, uncertainty surrounding Y2K and uncertain global economic conditions, and we will not see further margin expansion."

Maffei, generally conservative when providing earnings guidance, told more than 10,000 listeners on a conference call the more subdued outlook was partly based on expectations of a continued slowdown in PC demand in Europe and Japan. In the U.S., he said PC sales continued to look strong but he cautioned that Microsoft was not sure demand would be sustainable due to Y2K.

Because of an expected slowdown in fiscal 2000 revenue growth into the "high teens" from 29% in the year just ended and a charge linked to a different calculation for employee stock options, Maffei encouraged analysts to keep estimates for fiscal 2000 unchanged. He said a change in employee stock options would reduce fiscal 2000 earnings by 3 cents, spread out over the course of the year. According to First Call, analysts forecast Microsoft to earn $1.53 in 2000.

For the first quarter, he expected Microsoft to see a "normal, seasonal" sequential revenue decline but a year-over-year increase of about 20%.

Maffei said Microsoft had $200 million worth of unearned revenue linked to

coupons for free Office 2000 upgrades to be recognized over the next two quarters. At the end of the March quarter, he said the company had $400 million in unearned revenue linked to coupons, recognized $300 million of that in the June quarter while adding $100 million.

Maffei also told analysts and investors that Microsoft was considering a tracking stock for its Internet properties but as of yet had "no immediate plans" to make an announcement. Microsoft is planning an analyst day on Thursday.

The stock fell to 97 9/16 in after-hours trading from a close of 98 3/8.


Medora Lee

The other big earnings report tonight came from


(IBM) - Get Report

. Big Blue posted second-quarter earnings of 91 cents a share, topping both the 21-analyst prediction of 88 cents and the year-ago 75 cents. The company said quarter revenue grew 16% to $21.9 billion.

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 will take a $6.9 million third-quarter charge to consolidate its mainland Hawaii data processing operations at its Honolulu operations center.


(CBRL) - Get Report

said it sees fourth-quarter earnings of 21 cents to 25 cents a share due to poor

Cracker Barrel

same-store sales, higher costs from increased management staffing levels at these stores and pressure on store-level margins. The 17-analyst estimate called for 37 cents vs. the year-ago 56 cents.



posted third-quarter earnings of 26 cents a share, including special items. The two-analyst forecast called for operating earnings of 28 cents vs. the year-ago 54 cents.



said it expects to report a second-quarter loss of 14 cents to 17 cents a share, excluding a $9 million insurance reimbursement. The three-analyst view called for an operating loss of a penny vs. year-ago earnings of 6 cents.



reported second-quarter earnings of 60 cents a share, 5 cents higher than the five-analyst estimate and significantly ahead of the year-ago 15 cents The company also set a 2-for-1 stock split.


New York Stock Exchange

said its second-quarter net income came in at $30.5 million, which is unchanged from a year earlier.

Mergers, acquisitions and joint ventures



agreed to sell its

Technical Services

division to the

Carlyle Group

for $250 million in cash, saying the unit isn't a good fit with the company's long-term focuses in life sciences, analytical instruments, electronics and aerospace.

GM Hughes Electronics'



unit made a $15 million equity investment in privately held

Wink Communications

. Wink's technology allows broadcasters and advertisers to embed data and simple graphics into broadcasts.



signed a final $61 million settlement of lawsuits brought by the federal government, charging the company with defrauding the



Offerings and stock actions

J.P. Morgan



(DNA:NYSE) 20 million-share IPO top-range at $97. The price range for the biotech company's first offering was raised to $88 to $98 from $85 to $95. The company, whose parent is

Roche Holding

, develops, manufactures and markets pharmaceuticals.

In other new issues:

  • Goldman Sachs priced Convergent Communications' (CONV:Nasdaq) 8.4 million-share offering top-range at $15. The company is a data and voice communications services provider. The price range for the offering was raised to $13 to $15 from $11 to $13.
  • Credit Suisse First Boston priced Gadzoox Network's (ZOOX:Nasdaq) 3.5 million-share offering above-range at $21. The company makes products that connect computer systems to data storage services. The price range for its offering was raised to $18 to $20 from $9 to $11.
  • Lehman Brothers priced Talk City's (TCTY:Nasdaq) 5 million-share IPO top-range at $12. The company is an online communities provider. The price range for its offering was raised to $10 to $12 from $8 to $10.



said it will sell 2.8 million shares of

Nextel Communications


during the third quarter. After the transaction, Motorola will own 19% of Nextel's 56 million outstanding shares.


A federal court temporarily barred

Eli Lilly

(LLY) - Get Report

from making promotional claims that its osteoporosis drug


has been shown to reduce the risk of breast cancer, its British rival



St. Jude


said it advised doctors that premature battery depletion can occur in a "very small" number of its



Bond Focus: Even Forex Fireworks Can't Distract Treasury Traders


Elizabeth Roy

Senior Writer

The Treasury market finished the day very little changed in spite of some noontime fireworks in the currency market, which can often spill over into the credit markets. Analysts attributed the bond market's paralysis to its single-minded focus on what



Alan Greenspan

will say when he addresses


on the economy and monetary policy on Thursday.

Undistracted by the economic calendar, which was bare, the benchmark 30-year Treasury bond ended the day down 6/32 at 90 31/32, lifting its yield 2 basis points to 5.90%. But shorter-maturity Treasury notes, whose yields correspond more closely to the short-term interest rates set by the Fed, closed slightly higher on the day, dropping the two-year note's yield, for example, to its lowest level since May 28. The two-year note gained 1/32, dropping its yield from 5.47% to 5.46%.

In the foreign exchange market, the dollar tumbled against the euro in what traders attributed to a short squeeze, starting at around 12:30 p.m. EDT. Basically, the euro, which has been moving toward parity with the dollar since its introduction at the beginning of the year, traded as low as $1.0121 overnight. But as it bounced off that level and continued moving higher, traders who were short the currency reached their pain threshold at around $1.0198. As the currency rocketed from there to $1.0329, some suspected an intervention by the

European Central Bank

. Trouble is, no one saw any intervention. Today's action returns the euro to a level, around $1.029, not seen since the end of June.

The weakness in dollar-euro also affected dollar-yen, which tumbled from around 118.93 yen to the dollar to as low as 117.72, before recovering to around 118.30, its worst close since June 11.

Weakness in the dollar normally causes weakness in Treasuries, since they become less appealing to foreign investors. At the same time, a weakening dollar can be inflationary in the U.S.

The price action in Treasuries was notable today because it was so subdued relative to what went on in forex. And that,

Merrill Lynch

Treasury market strategist Jerry Lucas said, "indicates that the market is looking beyond all this to


, which is going to set the tone for the rest of the summer."

Greenspan's Humphrey-Hawkins testimony on the economy and monetary policy, slated for 11 a.m. EDT Thursday before the

House Banking Committee

, will be closely attended for any hint about the likelihood of additional interest-rate hikes this year, including at the Fed's next meeting on Aug. 24.

Before the Fed raised rates on June 30, many bond market mavens expected at least two rate hikes. But the

Federal Open Market Committee's

reversion to a neutral policy bias from a tightening bias and last week's benign inflation reports have made the consensus more bullish.

"The market's looking right through this," Lucas said of today's currency market action, "because what Greenspan says is going to have more important long-term ramifications" for the dollar.

There's unlikely to be any positive movement in the Treasury market in advance of Humphrey-Hawkins either,

Fuji Securities

president Bernie Jensen said, even though he doesn't see much risk in it.

"I think his negative comments are pretty well known," Jensen said. "He's been on the hawkish side and most people believe he will still be that way. But there's some little hope he'll talk about why he took the neutral stance, and the moderation in the economy. I think the market can handle more hawkishness, as long as it's not one-sided."



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