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daily08-17-99's DAILY BULLETIN

August 18, 1999

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Market Data as of Close, 8/17/99:

o Dow Jones Industrial Average: 11,117.08 up 70.29, 0.64%

o Nasdaq Composite Index: 2,671.22 up 25.94, 0.98%

o S&P 500: 1,344.16 up 13.39, 1.01%

o TSC Internet: 557.86 up 16.74, 3.09%

o Russell 2000: 436.00 up 2.18, 0.50%

o 30-Year Treasury: 10 118/32 up 1 03/32, yield 6.012%

Companies in Today's Bulletin:

Network Solutions (NSOL:Nasdaq)

Interliant (INIT:Nasdaq)

Texas Instruments (TXN:NYSE)

Dell (DELL:Nasdaq)

Applied Materials (AMAT:Nasdaq)

In Today's Bulletin:

o Semiconductors: Texas Instruments Strikes Up the Brand for Its Audio Chips
o Trader's Turret: Dell Looks Great, but Questions Linger at Applied Materials
o Evening Update: Network Solutions, Interliant in Sales, Services Pact
o Bond Focus: Treasuries Bull Ahead, With 6% In Sight

Also on

Online Brokers: E*Trade-Instinet Pact Opens After-Hours Club to the Little Guys

Two giants join so that the masses can stay up late too.

Biotech/Pharmaceuticals: Coulter Stock Falters Amid Worries on Bexxar Filing

The stock drops 12% as investors speculate the filing hasn't been accepted by the FDA.

Stock Mart: Respect Your Elder-Beerman: Investor Moves to Shake Up Retailer

An activist shareholder is buying 5.3% of the company's stock in hopes of forcing some kind of change.

Biotech/Pharmaceuticals: Homely American Home Presenting a Potentially Pretty Pipeline

Recent problems have knocked the stock way down. But some fund managers see a full pipeline and an opportunity to buy.

Semiconductors: Texas Instruments Strikes Up the Brand for Its Audio Chips


Marcy Burstiner

Staff Reporter

8/17/99 9:16 PM ET

SAN FRANCISCO -- It's not enough that

Texas Instruments


has profits pouring in and can boast a stock chart that makes



salivate. Now Dallas' chip cowboys want to brand digital music players so consumers will demand TI inside.

"Right now we are just starting a branding campaign," says Gary Johnson, TI's worldwide manager of audio digital signal processors. "We are targeting a TI DSP logo to show that the player is programmable, that you could go to a Web site and upgrade the portable player."

Outperforming Intel
Stock prices of Texas Instruments and Intel

Today TI chips are in about two out of every three cell phones, but few cell phone users would ever know or care. Now TI hopes branding will tie its name to downloadable music players much in the way Intel's name has become associated with consumer PCs. Johnson emphasized it's too early for the company to discuss details about the branding campaign, saying that its effectiveness will require cooperation from the companies that make the players.

Only two companies have announced plans to sell downloadable music players with TI chips in time for



Thomson Consumer Electronics

and a start-up called



But if anyone knows the rewards of getting into a game early, it is Texas Instruments, which turned a one-time money-losing obsession with digital signal processors into a

domination of the very-profitable market for cell phone chips. These days TI is looking at a market that's expected to grow from 2 million units this year to 24 million units by 2003.

But while TI was alone for years in its belief that the DSP market would pay off, in this new market it already faces competition from chip companies

Cirrus Logic








. And all these companies are racing to catch up with

Micronas Intermetall

, a privately held European company which supplies chips for

Diamond Multimedia's


popular Rio player.

More companies are expected to jump in once the market develops, a development that leaves some analysts leery. "It will be a very big market, but it will be commoditized," says Brian Alger, a chip analyst with investment bank

Preferred Capital Markets

. "By the time it is a big market there will be a lot of players." He expects to see



jumping in, possibly





. (Preferred has no underwriting relationship with TI).

Because of pressure to make the players as inexpensive as possible, manufacturers might bypass companies like TI and Cirrus Logic altogether for companies like

Advanced Micro Devices


, Intel,





, all of which make microcontrollers -- much cheaper chips with more limited functions.

In that case, though, the market will likely split into two sectors, says Will Strauss, an analyst with

Forward Concepts

, a research group specializing in DSP technology. On the bottom will be higher-volume cheap players that people can download music to and replay from. On the top will be a smaller but higher-margin niche for machines that have extra memory and remote Internet access.

The questions for companies like TI and Cirrus are how big a niche each can carve out for itself now and whether each of them will be able to secure market share in the future.

Mike Paxton, a technology analyst with

Cahner's In-Stat Group

, says early positioning and consumer branding is important to convince consumers that it's worth it to pay more for fancy functions, thus justifying expensive chips.

"Prudent companies are looking at this as a valuable niche market that will only grow over time," Paxton says. "If they are positioned like TI and Cirrus to steer the development, they will be ready for it."

Trader's Turret: Dell Looks Great, but Questions Linger at Applied Materials


Jeff Berkowitz

8/17/99 4:55 PM ET

Just some quick thoughts as we sort through




Applied Materials


after the close.

Dell -- excellent earnings report. Revenue at the high end of the range. Looked strong, whisper number beaten back. It's like this company had something to prove. Should be a Dell rocket ship tomorrow.

AMAT had great earnings per share, nice revenue -- but orders right below the whisper number. Confusing, 'cause lately the rumor had been that the company would miss the $1.5 billion number. Stock probably down unlesss the conference call is good. We'll have to see how they sound on the phone.

Good Dell. Questions about AMAT.


Jeff Berkowitz is a partner in hedge fund Cramer Berkowitz with James J. Cramer, co-founder of At time of publication, the fund was long Dell. The 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 the fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Berkowitz'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: Network Solutions, Interliant in Sales, Services Pact


Tara Murphy

Staff Reporter

8/17/99 8:22 PM ET

Network Solutions


said it would collaborate with



, a Web site manager, to offer services to small to mid-size businesses. The deal will allow the two companies to share existing and potential clients in a dual sales effort. The two companies will examine a possible joint business, supplying a rentable application that would let small- and medium-sized business use Internet business applications without having to buy otherwise necessary support equipment.

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

Earnings/revenue reports and previews



reported third-quarter earnings of 48 cents a share, beating the eight-analyst estimate of 44 cents a share and up from a year-ago loss of 47 cents a share.

Longs Drugs


reported second-quarter earnings of 42 cents a share, in line with the six-analyst estimate and up from 38 cents a year ago.



reported fourth-quarter earnings of 1 cent a share, slightly better than the 21-analyst expectation that the company would break even, and better than a year-ago loss of 1 cent a share.

Readers Digest


posted fourth-quarter earnings of 15 cents a share, better than both the seven-analyst estimate of 13 cents and the year-ago five cents.

Roper Industries


posted third-quarter earnings of 41 cents a share, beating out both the nine-analyst estimate of 40 cents and the year-ago 33 cents.



reported second-quarter earnings of 18 cents a share excluding charges, in line with the 14-analyst estimate and up from 2 cents a year ago.

Sports Authority


posted disappointing earnings of seven cents a share, narrower than both the seven-analyst estimate of eight cents and the year-ago 12 cents.

Offerings and stock actions


(NOVA:Nasdaq) priced below its revised $9 to $11 range, at $8 a share.

Donaldson Lufkin & Jenrette

served as the IPO's lead underwriter.


Allegeny Teledyne


said it has been subpoenaed by a federal grand jury probing possible antitrust violations in the nickel alloys business. Allegeny Teledyne's chairman, president and CEO Richard Simmons said the company maintains a comprehensive program to ensure that antitrust violations are followed. The company said that nickel and alloy sales represent less than 10% of its revenue.



announced its plans to open 50-60 new stores in the year 2000. The company said 38 stores, previously owned by


, will open in the first half of the year in New Jersey, New York and Connecticut, while additional stores will open their doors in Dallas/Fort Worth, St. Louis and Rochester, Minn., markets. As of July 31, Kohl's stores totaled 231, up from the year-ago 197 stores. The chain has opened 46 new stores in 1999. Kohl's reported better-than-expected earnings of 27 cents a share, beating both the 17-analyst estimate of 24 cents and the year-ago 19 cents.

Bond Focus: Treasuries Bull Ahead, With 6% In Sight


David A. Gaffen

Staff Reporter

8/17/99 4:58 PM ET

Treasuries muscled out a rally on the back of this morning's

Consumer Price Index

release, pushing the 30-year bond yield close to 6%.

The steady rally surprised some because unlike last week's

Producer Price Index

, which came in lower than expectations, the CPI hit the estimates dead on.

"I would be concerned about this rally," said Richard Schwartz, vice president in the stable value group at

New York Life Asset Management

. For the next six months, "I would say I'm constructive but we've had a pretty strong snap back pretty quickly and I'd say we've come a bit far a bit fast."

Just last Thursday, the 30-year Treasury bond ended the day at 6.27%. Today it closed at 6.01%, its lowest yield since July 28, comforted that the core CPI is only rising at a 2.1% rate. The bond's price rose 1 6/32 to 101 20/32. In the last few days it's looked like the market's back to its old tricks -- if it sees inflation, it panics. Otherwise, smooth sailing. Today's gains also came in spite of another strong

housing starts

report, a measure of the pace of consumer spending, and a sharp increase in

industrial production

, a key indicator in the long-dormant manufacturing sector.

"One of the key things the market has ascertained here is that with final prices remaining subdued even with this stronger economy, it strengthens the argument that we're still experiencing productivity gains," said Schwartz.

The CPI, the market's broadest measure of price inflation, rose 0.3% in July. The core rate, which cancels out food and energy prices, rose 0.2%, in line with expectations, according to


. On a year-over-year basis, both the core rate and overall CPI are rising at a 2.1% rate. Most of the market expect the

Federal Reserve

to raise the fed funds rate by a quarter point to 5.25% next Tuesday, and this was the last release that could have fed fears of a 50-basis-point hike.

"I don't think this changes the markets' perception about next Tuesday: most people still feel we're getting 25," said Bill Hornbarger, Treasury market strategist at

A.G. Edwards

. But "this

and the PPI take 50 off the table. More importantly, it really raises the idea that that's going to be it" until the end of the year.

What the market is currently betting on is that inflation will remain under control even if the economy continues to expand -- witnessed by the narrowing in the yield spread between the two-year note and 30-year bond. Today the spread narrowed to 34 basis points, its narrowest since Aug. 26, 1998, from 37 basis points yesterday. The two-year note rose 4/32 to yield 5.67%. This indicates the market believes inflation is under control, though it's expecting an interest-rate hike next week.

While the Fed and an overall bearish tone helped push yields to their highest levels of the year last week, the market -- especially the long end of the curve -- turned optimistic at the end of last week, and is now accentuating the positive.

"It's encouraging," Hornbarger said. "Instead of being in a 'sell the news' mode, now it looks like we've turned into a 'buy the dip' mode. The data are a little more friendly toward bonds, and there's less people talking about significantly higher bond yields."

Just the thing Schwartz is worried about. He believes the market is understating the risk of inflation after this rally to the 6% level, and it's a bet that the strength in consumer spending and rebound in manufacturing could result in the Fed further hiking interest rates.

Industrial production rose 0.7% in July, less than the 0.8% estimate but the highest one-month reading since March. Meanwhile, manufacturing output rose by 0.6%, its largest increase since October. Capacity utilization rose to 80.7%, its highest level since last December.


Census Bureau

also reported that housing starts increased in July to a seasonally adjusted annual rate of 1.661 million, besting expectations for a 1.61 million increase. And building permits, a precursor to more housing construction, rose at a 1.632 million rate, ahead of the 1.61 million consensus.


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