Publish date:

daily07-28-99's DAILY BULLETIN

July 29, 1999


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Market Data as of Close, 7/28/99:

o Dow Jones Industrial Average: 10,972.07 down 6.97, -0.06%

o Nasdaq Composite Index: 2,705.84 up 26.51, 0.99%

o S&P 500: 1,365.40 up 2.56, 0.19%

o TSC Internet: 584.32 up 13.51, 2.37%

o Russell 2000: 446.61 up 0.13, 0.03%

o 30-Year Treasury: 89 17/32 up 1/32, yield 6.002%

Companies in Today's Bulletin:

Compaq (CPQ:NYSE)


Intel (INTC:Nasdaq)

In Today's Bulletin:

o Semiconductors: The Future for Dark Horse AMD Gets Darker
o Wrong! Rear Echelon Revelations: Banking on Greenspan
o Bond Focus: Awaiting Potentially Decisive Economic Data Tomorrow, Treasuries Hold Steady
o Evening Update: Compaq Reports Loss, Sees 8,000 Jobs Cut in Big Restructuring

Also on

Europe: The Anglo File: BT Buys Out Cellnet Ahead of Licensing Shift

The deal positions the telecom for the coming auction of UMTS licenses -- and the price is right.

Truth Serum: Truth Serum: Rerouting Takeover Talk Among Networkers

Plus, Rite Aid and Duane Reade receive mention as possible acquisition targets.

Eye to the Keyhole: For Investors, a Coke and a Frown

Recent comments by Douglas Ivester, Coke's bumble-tongued CEO, might be sending down the stock and turning off investors.

The Invisible Mouth: Durable Goods, Business Investment and You

Checking in on the data and trends the Fed might examine.

Semiconductors: The Future for Dark Horse AMD Gets Darker


Marcy Burstiner

Staff Reporter


Advanced Micro Devices'

(AMD) - Get Advanced Micro Devices, Inc. Report

Athlon chip is hitting the market with the promise of turning the company around, analysts are wondering whether its next chip, the K8, is already in jeopardy.

Although the K8 is only in the early development stage, many in Silicon Valley feel the chip's future -- and possibly the long-term survival of AMD itself -- depends on Chairman and CEO Jerry Sanders replacing President and CTO Atiq Raza quickly with someone who can keep the chip's engineering team intact.

"Atiq's departure could cause a few of the engineers to think that without him the chances of success are dismal," says Keith Diefendorff, senior analyst at technology research firm

MicroDesign Resources

and a former member of the AMD team that designed its groundbreaking K6 chip several years ago. "Atiq is a tremendous loss for AMD. He had a number of very talented engineers who respect him highly."

Raza abruptly resigned July 14, just weeks after the company announced the first shipments of the Athlon, or K7, the success of which, Sanders himself has acknowledged, AMD now

depends on for any chance at profitability.

Raza's departure shocked not only Wall Street but an engineering community in Silicon Valley that is usually half a step ahead on rumors of any major event. When Raza resigned, Sanders assured financial analysts that his departure wouldn't affect production or sales of the Athlon, but he didn't even raise the question of the K8.

At the

BancBoston Robertson Stephens

Semiconductor Conference Wednesday, Ben Anixter, director of external affairs at AMD, told

that there is no need to worry about the K8. "We have a K8 program in place and we have it staffed," Anixter said.

The Athlon will give AMD a year and a half lead over


(INTC) - Get Intel Corporation (INTC) Report

, he said. "To worry about the next product when we have a 1 1/2-year lead is a little bit prosaic," Anixter said. "We do have the successor to the Athlon in place and it will come out in time."

The Athlon will take AMD only so far, says Diefendorff. If AMD can produce the Athlon in volume, it may prove to be faster than any chip Intel has on the market, but only until Intel comes out with its next-generation Willamette chip by the end of next year. After that, AMD will need an entirely new chip, and designing one takes years, Diefendorff says.

"As long as their focus and intent is to compete against Intel, they have to have next-generation new architectures," Diefendorff says. "It's a terribly difficult treadmill. If you stumble on the treadmill, it could be a disaster and I think that's the case here."

AMD doesn't have time to waste. "They will want to have a new processor core sometime in 2001 and 2002, which means they need to begin working on it now," says Nathan Brookwood, a chip analyst at technology research firm

Insight 64


AMD is at a crucial point in its attempted transformation from a struggling Intel-clone maker that's always two years behind Intel to a company that can beat Intel at its own game: Selling chips into high-priced computers where profits have been high.

The worst-case scenario for AMD would be that it loses key members of its K8 design team as a result of Raza's departure, says Brookwood. Microprocessor architects are very hard to find and designing new microprocessors is extremely difficult.

It's not as if the team wouldn't have anyplace to go. Such engineers are among the most sought-after in the technology field. Companies such as




Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

are always on the lookout for designers of superfast chips, Brookwood says.

AMD is more susceptible to losing its K8 team as a result of Raza's departure than the team that has designed the Athlon, says Diefendorff. While the Athlon is led by Dirk Meyer, who came to AMD from

Digital Equipment Corp.

, the K8 team is led by Fred Weber, who came with Raza from



Anixter said talk about departures is pure speculation and even so the loss of some engineers would not mean the collapse of the K8 team. "We have an awful lot of AMDers in that group," he said.

In his quest to beat Intel, AMD CEO Jerry Sanders is most like:

Mark Hamill as Luke Skywalker in

Star Wars

: "It's not that I like the Empire; I hate it!"

Elizabeth Taylor as Velvet Brown in

National Velvet

: "I want it all quickly 'cause I don't want God to stop and think and wonder if I'm getting more than my share."

Graham Chapman as King Arthur in

Monty Python and the Holy Grail

: "On second thought, let's not go to Camelot. It is a silly place."

Mike Myers as Austin Powers in

Austin Powers: International Man of Mystery

: "I've been frozen for 30 years. I've got to see if my bits and pieces are still working."

Wile E. Coyote as Wile E. Coyote in

Scrapes of Wrath

: "I'm such a genius!"

Wrong! Rear Echelon Revelations: Banking on Greenspan


James J. Cramer

Do pros really sit on their hands and watch

Alan Greenspan

breathlessly, not making a move until the coast is clear? Not exactly. Well, maybe. OK, a little.

You bet we do.

On any given day I want to do certain trades. I am always looking, for example, to buy the banks on weakness. The last few times that Greenspan has been speaking, these stocks have gotten hammered.

All day I had my eye on

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

for a trade. I think these guys are doing very well, but the stock was sinking rather rapidly. I love trading J.P. Morgan because it packs a punch and the businesses are doing quite well, as of last check-in.

But Morgan drops like a stone when Greenspan is hawkish. It is one of the first to roll over. The stock edged down and down during Greenspan's go-round today. The moment Senator

Phil Gramm

thanked Greenspan for coming and praised him for having the Dow do nothing (up 10 at the time) I swooped down and took $134 stock, betting the financials could rally.

Didn't work. Never rallied.

But I like this bet for the next couple of days if we get a slower GDP, something I think could happen. Having sold my bonds during that nice dip down in rates off of Latin flight to safety, I have very little exposure to the financials.

Now that Greenspan is out of the way, I think buyers come back to that group.

The funny thing is that three times before Greenspan was finished I wanted to jump the gun, that's how fearful I was that others were also waiting for him to finish.

What I didn't count on though was that when Greenspan was finished speaking, the stocks that flew the most were the ones that were already doing quite well ahead of the speech: semiconductors.

Right idea; wrong group. For now.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long J.P. Morgan. 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

Bond Focus: Awaiting Potentially Decisive Economic Data Tomorrow, Treasuries Hold Steady


Elizabeth Roy

Senior Writer

The Treasury market ended the day very little changed ahead of the release tomorrow morning of potentially decisive economic data. It traded up a bit in the morning in response to a favorable

durable goods

TheStreet Recommends

report, headed lower leading up to the monthly auction of new two-year notes in the early afternoon, and finally recovered after the notes were awarded at a slightly lower-than-expected yield.

Through it all,



Alan Greenspan

, who last week delivered his


testimony on the economy and monetary policy for the



repeated it for the


and took questions from the

Banking Committee

members. But as committee chairman Phil Gramm noted at the hearing's conclusion, the little-changed status of the stock market at that point suggested that nothing Greenspan said during the Q&A altered perceptions about where monetary policy is headed.

The benchmark 30-year Treasury bond ended the day unchanged at 89 17/32, its yield 6.01%. Shorter-maturity notes were likewise unchanged or very little changed.

The Treasury market is pretty evenly divided over whether the Fed will hike interest rates again at its next meeting on Aug. 24, and is counting on several key economic reports to help settle the question.

The first of those reports -- the second-quarter

Employment Cost Index

and the advance estimate of second-quarter


-- comes out tomorrow at 8:30 a.m. EDT. Economists surveyed by


are looking for a 0.8% gain in the ECI and for GDP to grow at a 3.3% pace.

But while bond traders will certainly welcome weaker-than-expected or even consensus reports, market analysts say friendly numbers can't help as much as stronger-than-expected numbers can hurt.

That's due in part,

Lehman Brothers

economist Joseph Abate said, to "a general bias in the market to discount favorable numbers, on the belief that the Fed will also discount past numbers and focus on what the performance of the numbers is going to be in the next six months." In other words, on the belief that when the Fed meets to consider raising interest rates on Aug. 24, it will be more concerned about third- and fourth-quarter than second-quarter ECI and GDP.

But it's also due to the fact that there's a Treasury refunding coming up. The refunding -- the Treasury's quarterly auction of long-dated bonds and notes -- is slated for Aug. 10-12, and there's a seasonal tendency for the market to cheapen in the weeks leading up to it, barring any compelling reason to rally. Dealers simply want the bonds and notes as cheaply as they can get them, so they'll sell as much as they can stand to drive the prices lower.

A more or less in-line ECI will be a "nonevent,"

Banc of America Securities

trader Matt Frymier said. But if it rises more than 0.9%, "the Street will use it as an opportunity to sell the market and bring the refunding at cheaper prices."

As for the advance estimate of second-quarter GDP,

Robert W. Baird

senior bond strategist Jim Kochan says that even a tame headline number could encourage the bears if the consumer-spending portion of the report is very strong. The swollen trade deficit will depress the overall growth rate, but the Fed could conceivably focus on consumer behavior.

This morning's durable goods report offered some hope that the consumer, whose spending increased at a 6.7% rate during the first quarter, is slowing down. Overall, orders for durables rose 0.3% in June, vs. a consensus forecast of 1.0%. And factoring out a 2.7% increase in orders for transportation equipment, durables orders fell 0.4%.

Treasuries pushed a bit higher on the news, the long bond topping out up 2/32 at 8:44 a.m. But then it traded down as much as 9/32 before the 1 p.m. bidding deadline for the new two-year notes.

After the $15 billion of notes were awarded at a yield of 5.544%, slightly below the 5.55% level where they traded at the bidding deadline, prices improved. "It confirms there was good interest in the issue and in Treasuries as a whole," Frymier said.

"There's still a lot of apprehension about the numbers tomorrow," the trader said. "But you have to remember the market is pretty far off its highs. People who a week ago were thinking about buying

the new notes at 5.39% got a chance to buy them at 5.54%." Plus, Frymier says, it's possible the Fed will hike rates again only if all the relevant economic indicators turn out to be stronger than expected. "A lot of people are betting that that's not going to happen."


Evening Update: Compaq Reports Loss, Sees 8,000 Jobs Cut in Big Restructuring


Heather Moore,

John J. Edwards III


Eileen Kinsella

Staff Reporters



reported a second-quarter loss of 10 cents a share, a penny narrower than the 30-analyst

First Call

estimate. The company lost $2.33 a share in the year-ago period, including charges for its acquisition of

Digital Equipment

; First Call reports a year-ago operating profit of 2 cents a share. Compaq set plans for a major restructuring, including the elimination of 8,000 jobs. The struggling PC giant will take a third-quarter charge of $700 million to $900 million for the revamping.


said Compaq shares were unchanged after hours, having closed at 25 15/16.

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

Earnings/revenue reports and previews

AHL Services


posted second-quarter earnings of 30 cents a share. Before goodwill amortization associated with acquisitions, the company said it made 36 cents. The seven-analyst forecast called for operating earnings of 28 cents vs. the year-ago 18 cents.

American Italian Pasta


reported third-quarter earnings of 35 cents a share, in line with the four-analyst outlook and up from the year-ago 27 cents. The company said it expects fourth-quarter revenue growth to exceed third-quarter levels.



reported a break-even operating result for its third quarter, missing the five-analyst estimate by 3 cents and matching the year-ago result. But Energen said it expects its fiscal 1999 earnings to exceed the fiscal 1999 estimate of $1.27 a share, citing its hedge position and the strength of its utility operations.

Oak Technology


reported a fourth-quarter loss of 39 cents a share vs. the year-ago loss of 12 cents, both on items. The company provided no per-share operating results and there were no estimates. Oak also approved a buyback of up to 4 million shares over the next year.

Varian Medical Systems

(VAR) - Get Varian Medical Systems, Inc. Report

reported third-quarter earnings of 36 cents a share, a penny short of the three-analyst expectation but up from the year-ago 29 cents. The company said it expects fiscal 1999 revenue growth to be in the high single digits, citing increased sales of its cancer therapy systems and X-ray tubes.


(WH) - Get Wyndham Hotels & Resorts, Inc. Report

, a distributor of


(PEP) - Get PepsiCo, Inc. Report

products, said it expects to take a variety of second-quarter charges and gains, netting out to an after-tax charge of $59.5 million.

Mergers, acquisitions and joint ventures


(AAPL) - Get Apple Inc. (AAPL) Report

agreed to invest $100 million in a

Samsung Electronics

unit, looking to ensure a supply of flat-panel displays for Apple's new notebook computers.


(BBT) - Get BB&T Corporation Report

agreed to buy

Premier Bancshares


in a stock deal valued at $624.1 million.

Offerings and stock actions

Neuberger Berman

said its principals voted to take the money-management firm public, releasing no other details as yet. The firm, with $56 billion in assets under management, intended to go public last year but canceled the plans in October amid market turmoil. Back then it planned to offer 15% of the firm to raise up to $300 million.



set a 2-for-1 stock split for shareholders of record Aug. 9. The company also named Gary Monetti CEO and selected Kimon Anemogiannis, vice president-operations, to replace him as president and COO. Monetti replaces company founder Steven Miller, who will remain chairman.



set a 2-for-1 stock split, effective Sept. 15 for shareholders of record Aug. 31.


Carnival Cruise Lines

(CCL) - Get Carnival Corporation Report

raised to 108 from 62 the number of sexual assaults committed on its ships, saying the new count includes 22 charges of rape made by passengers or crew.


International Monetary Fund

approved a new $4.5 billion loan for Russia.

News Corp.'s

(NWS) - Get News Corporation Class B Report

HarperCollins Publishers

unit said it would close the distribution center in Dresden, Tenn., and the back-office operations in Fairfield, N.J., that it acquired in buying

William Morrow


Avon Books

. The closings, affecting about 100 employees, are to occur by Dec. 31.

Vern Hayden on Power Lunch

Thursday, July 29

Vern Hayden will be appearing on CNBC's Power Lunch beginning at noon EDT.

Vern Hayden on Sage on AOL

Thursday, July 29

Chat with Vern Hayden on Sage on AOL at 9 p.m. EDT. (Keyword: Sage)

Get the word on Internet stocks this weekend, as Merrill Lynch Internet analyst Henry Blodget appears on TV show on the Fox News Channel. The show airs Saturday 10 a.m. ET and again on Sunday 1 p.m. ET. For more info and how to find Fox News in your area, please see our TSC on Fox page, at

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