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daily09-02-99's DAILY BULLETIN

September 3, 1999

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Market Data as of Close, 9/2/99:

o Dow Jones Industrial Average: 10,843.21 down 94.67, -0.87%

o Nasdaq Composite Index: 2,734.24 down 16.56, -0.60%

o S&P 500: 1,319.11 down 11.96, -0.90%

o TSC Internet: 561.91 down 1.23, -0.22%

o Russell 2000: 427.42 down 3.57, -0.83%

o 30-Year Treasury: 99 30/32 down 20/32, yield 6.141%

Companies in Today's Bulletin:

PepsiCo (PEP:NYSE)

Intel (INTC:Nasdaq)

Rambus (RMBS:Nasdaq)

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TheStreet Recommends

In Today's Bulletin:

o Semiconductors: Intel Notebook: A Kinder, Gentler Chip Giant
o Wrong! Rear Echelon Revelations: Buy When You Can
o Evening Update: PepsiCo Sees Rise in Third-Quarter Earnings; After-Hours Trading Update
o Bond Focus: Kelley's Heroes Do Not Include the Bond Market

"" on the Fox News Channel

This week's "Stock Drill" guest is Richard Babson, president of Babson-United Investment Advisors. Babson is the third generation of management in a firm founded originally by Roger Babson, who is renowned for predicting the 1929 stock market crash and founding Babson College. Join Herb Greenberg and Jim Cramer as they see what Richard predicts for his favorite stock picks in today's market.

Plus, we'll tell you what sectors you don't want to be in come this fall and how to recognize danger zones on "Word on TheStreet."

The show airs Saturday at 10 a.m. ET and again Sunday at 1 p.m. ET. For more info and how to find Fox News in your area, please see our TSC on Fox page at

Also on

Market Features: Red Hot Results: ICG and Harmonic Make the Grade

You selected these two companies to join Cramer's index of Red Hots.

Market Features: Teachers, Oil Prices Threaten to Make Jobs Report an Adventure

Economists think the employment report could hold a few inflationary surprises.

Consumer Products: Consumer Products Notebook: Campbell Falls into the Soup

Plus, Flowers Industries' earnings restatement smells different to different analysts.

Online Investing: Signing on the Virtual Dotted Line: A Vexing Problem for Fund Companies

Invesco is pushing ahead with its own digital signature plan, but experts say legal issues are anything but settled.

Semiconductors: Intel Notebook: A Kinder, Gentler Chip Giant


Marcy Burstiner

Staff Reporter

9/2/99 7:50 PM ET

PALM SPRINGS -- Any small business knows the inviolate rule for survival: The customer is always right. After 30 years in business,


(INTC) - Get Intel Corporation Report

is finally figuring that out.

For most of its history, Intel has dominated its markets, putting it in a position to write the rules. At this week's

Intel Developers Forum

, several key Intel executives indicated a growing awareness that Intel is entering an era when it must follow the same rules as everyone else.

Intel networking general manager Mark Christensen repeatedly emphasized that in creating a new

network architecture, the company isn't dictating to communications customers what products they must buy.

Pete MacWilliams, an Intel fellow who heads Intel's memory technology efforts, said that after previously vowing to produce only


(RMBS) - Get Rambus Inc. Report

chipsets, the company would now

respond to demands for an alternative technology, PC133 SDRAM. He told

: "Intel will never be able to lead in every technology all the time."

Regarding Intel's attempt to produce the perfect easy-to-use computer, a top priority for CEO Craig Barrett, Intel executive Steve Whalley

admitted that a significant part of the problem rests in the software that goes into a computer. Intel, he said, can't dictate to computer makers what software to bundle on their systems or how they should do it.

Although a radical change for the world's biggest semiconductor company, a kinder, gentler Intel may ultimately be a stronger player in new, fast-changing markets.

"Intel, for a very long time, would tell instead of ask the customers what they wanted," says analyst Nathan Brookwood, of technology research firm

Insight 64

. For years Intel refused to acknowledge a growing trend toward low-priced PCs, and only entered the market aggressively in 1998 when arch rival

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices Inc. Report

began eating into its market share.

The classic example of Intel's arrogance came in 1994, when scientists discovered a bug in the Pentium chip that caused errors in calculating complex long division. "When that happened, Intel's initial response was that the bug would not affect too many people," Brookwood says. "They said 'Call us and we'll tell you if you have a problem and if we decide you do, we will send you a new chip.'"

Intel's changing attitude may stem from its changing leadership. Barrett, who became COO in 1993, president in 1997 and CEO last year, is much less confrontational than former and long-time CEO Andy Grove. "You see his influence in the

1997 settlement

of litigation with

Digital Equipment

and Barrett was willing to settle with the


," Brookwood says.

Another reason: Intel's markets are consolidating. The company now has fewer customers in both computing and networking than in the past, giving the remaining customers have a stronger voice. In networking especially, the number of end users is much smaller than in PCs -- we're talking


(T) - Get AT&T Inc. Report

and the Baby Bells.

Even your average Joe computer buyer has a bigger voice these days, says Martin Reynolds, a semiconductor market analyst for


. That's because as the price of chips plummets, Intel needs to sell far more to produce the revenue and profits investors are accustomed to.

For a company as big as Intel, responding to the needs of finicky customers isn't easy. New chips often require a new fabrication plant, and that means three years before the chips are ready for sale. Customers rarely know how many chips they'll need three years in advance. So, Intel often has to define a need before it even exists. "You put a lot of faith forward," he says.

And even in an area like networking, Sullivan says, while customers might know what they need for a particular project at a particular time, they may not have a clear understanding of the long-term solution to their problems.

"Sometimes we really have to try to lead, but sometimes what people ask for as a solution is not really the solution to their needs," he says. "You have to lead but you also cannot ignore the customer's needs. You have to be pragmatic in your approach."

Wrong! Rear Echelon Revelations: Buy When You Can


James J. Cramer

9/2/99 7:53 PM ET

Sometimes I think many of us forget what a hard game this truly is. Take this morning. The market dropped precipitously from the get-go and then hung on when the


was down about 140 points. At that moment, which looked like one of those exquisite moments where the selling had indeed subsided, a couple of large accounts started selling puts on various


indices. The market looked like it was ready to rally. It was a fakeout.

The bonds had not stopped going down. They ticked down a few more points and then the market proceeded to fall apart. The Dow got hit to down 200 and the


started unraveling. Only after the NDX futures stopped down-limit (the commodities guys couldn't sell them lower any more, they would have to wait until they were higher) did the market at last put in a bottom that worked.

Nobody knows when these bottoms are going to get put in. In thin markets like this, your main goal is not to bury yourself at one level. There is no reason to try to become a hero. That's why I said I was picking at things and bidding for others.

What does the battlefield look like at those moments? We get dozens of calls from brokers, and at moments like we saw down 200, there were nothing but sellers. That's when it is most frightening. That's when you have to decide that you can't worry about the market; you have to buy the individual stocks you love.

For example, ever since



reported that fine quarter, that stock has been on my screen as something I wanted to buy. It was down a bunch yesterday and it was off two today when the market got to down 200. There were many sellers out there. Our discipline is that we have to stick some bids in for stocks we really like when the market is down 200, even if we don't believe the market can rally. That's when we have to buy. We want to buy them when we can, not when we have to.

Why do we do that? Because other than in 1987, and a couple of times in 1990 and 1994, it's been right. And when it hasn't been right, it didn't hurt to start a position for something you liked in that fashion. Why Solectron? We know business is good. We know that they help computer companies manufacture product cheaply. It is a volatile stock that will certainly participate to the upside if the market turns. We got plastered for 20,000.

An hour later we were up a buck and a half. We took half off the table and left the rest to play. We finished the day with a good trade. We had no idea whether the market was going to hold or not. We knew that Solectron had hit our price target of where we wanted to start buying. That was enough. We had thought about SLR before the market had gone down. It was on our to-buy list and we bought it.

I know had we bought the stock when it was only down a dollar and the market was only down 140, we might have felt compelled to kick it out when the market got really ugly. That's why on these down days you have to wait until you see the whites of the bears' eyes before you can buy and you can't buy with authority.

You have to buy with the idea that it won't be your first or your only buy, and that you may just be starting a position.

So why did we boot half of the SLR? Because we need 50,000 shares to have a real-sized position at our firm. We didn't get hit low enough for us to get the 50,000 in. It became a trade because it just can't make us enough money at that size to justify hanging on to it.

Good trade; not a bad day.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Solectron. 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: PepsiCo Sees Rise in Third-Quarter Earnings; After-Hours Trading Update


Eileen Kinsella

Staff Reporter

9/2/99 8:37 PM ET


(PEP) - Get PepsiCo Inc. Report

said it anticipates a rise in third-quarter earnings per share despite lower operating income from its North American operations. The company said earnings will be helped by increased operating income at




. The 15-analyst estimate calls for third-quarter earnings of 33 cents a share.

Outflow from U.S. equity funds totaled $1.9 billion for the week ended yesterday with most sectors experiencing outflows, according to

AMG Data Services

. International equity funds reported outflows from both emerging and developed regions, accounting for 53% of total equity outflows. Among other categories, inflow to taxable bond funds totaled $568 million.

Last Trades on Island ECN

COMS: 27 3/32 at 5:12 p.m. EDT.

QTRN: 35 1/8 at 3:58 p.m. EDT.

INTU: 90 at 3:56 p.m. EDT.

MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter'sundefinedDiscover Brokerage and Mellon Bank'sundefinedDreyfus Brokerage Services. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 6 p.m. to 8 p.m. EDT Monday through Thursday. Island ECN offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 5:15 p.m. EDT.

updates the most active issues on both MarketXT and Island ECN in Got a Minute? and in the Evening Update.


also reports how MarketXT's three most active Nasdaq-listed issues finished the Island ECN session.


Eric Gillin

In other postclose news (earnings estimates from

First Call

; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

Georgia Gulf


said it would exit the methanol business entirely and that it expects an $8 million charge for the write-off of methanol assets.

National Discount Brokers


warned it sees first-quarter revenues about four percent below expectations. The three-analyst estimate calls for earnings of 21 cents a share. The company said it expects to report results between a two-cent profit and a one-cent loss.



said it expected lower earnings for the second half and was entering talks to change its bank credit agreements. The company also said COO and interim CFO Jeffrey Cordes resigned to pursue other interests.



reported a third-quarter loss of 35 cents a share including extraordinary items. The year-ago loss of $1.71 a share also includes extraordinary items. No per-share figures from operating income were provided. The three-analyst estimate called for earnings of 2 cents a share.

Mergers, acquisitions and joint ventures

Protection One




(LIFE) - Get aTyr Pharma Inc. Report

said plans for a proposed merger had been terminated due in part to regulatory delays. Lifeline said it would take a third-quarter charge of $500,000, or 5 cents a share, while Protection One said it planned to take a third-quarter charge of $2.2 million, or 2 cents a share, on merger-related costs.

Offerings and stock actions

As noted

earlier, the

New York Stock Exchange

took another step closer to becoming a publicly traded company. Chairman

Richard Grasso

said the Big Board's own board backed a measure authorizing the exchange's management to continue exploring a conversion to for-profit status. Converting to a for-profit corporate structure from its current mutual status would further pave the way for a possible initial public offering. But Grasso also said the plan to launch the IPO around Thanksgiving has been scuttled, with the exchange now targeting early next year for its public debut.

Now that it's standard practice to kick off every IPO with some dimwitted commercial gimmick to draw local camera crews to the stock exchange, the real question is what theme-related stunt the NYSE will dream up for the public debut. Maybe guys in suits trading stocks?

Brinker International

(EAT) - Get Brinker International Inc. Report

which operates



Macaroni Grill

restaurants, said it would buy back an additional $25 million of stock bringing the total amount of its buyback program to $35 million.

Phelps Dodge

(PD) - Get PagerDuty Inc. Report

said it cleared a share issuance it intends to use in its bid for


(AR) - Get Antero Resources Corporation Report


Cyprus Amax




Allegheny Teledyne

(ALT) - Get Altimmune Inc. Report

named Thomas Corcoran president and CEO effective Oct. 1. Corcoran, who is currently president and COO at a unit of

Lockheed Martin

, succeeds Richard Simmons, who will remain Allegheny's chairman.

Standard & Poor's


Quintiles Transnational


will replace

King World Productions


in the

S&P 500



(CBS) - Get CBS Corporation Class B Report

is scheduled to acquire King World on Tuesday.

American Eagle Outfitters


will replace Quintiles in the

S&P MidCap 400


Valassis Communications


said its board adopted a shareholder rights plan which makes it more difficult for someone to take over the company without management's consent. Each right allows shareholders to buy 1/100 of a new series of preferred stock at $170 if an unapproved shareholder acquires 15% or more of the company's common stock. Valassis said the move is not in response to any known takeover effort.

Bond Focus: Kelley's Heroes Do Not Include the Bond Market


David A. Gaffen

Staff Reporter

9/2/99 5:01 PM ET

It doesn't matter what cup you choose today -- everything is poisoned.




Edward Kelley

scaring the market on one side, and various economic data prodding it on the other, bonds slid slowly down a razor's edge into a pool of alcohol today.

"It's been a perfectly ugly day in bonds," said Jim Kochan, market strategist at

Robert W. Baird

, who later amended that statement to say, "Everything we've seen this week has been ugly as far as the bond market is concerned."

Yeah, and he hasn't even gotten to tomorrow's


report. It was Governor Kelley's day to kick the bond market around. Kelley, the Fed's point man on Y2K issues, told

Market News International's

Steven Beckner, in a story published around 8:15 a.m. EDT, that Y2K concerns will "not tie the Fed's hands." He also agreed that it would be premature to assume that the "Fed will wait until next year to raise rates further," the article said.

Doesn't take a genius to figure out that the market trembled, and then disassembled, on these remarks. Bonds sank, and never recovered, and of late, the 30-year Treasury was down 21/32 to 99 30/32. The yield rose 5 basis points to 6.13%.


Federal Open Market Committee

meets three more times before the end of the year, and until this week, the market was optimistic that the Fed might not raise interest rates before the end of the year, having done so twice this summer. The fed funds target is currently 5.25%.

The market turned around this year-long bear market two weeks ago, but this week's economic releases have flushed out most of the hope that the Fed will be on hold at the Oct. 5 meeting. Kelley's comments seem to suggest that the Fed, if necessary, won't rule out a hike at the Nov. 16 meeting either. (The Fed's last meeting is Dec. 21.)

Treasuries, mauled by Kelley's comments, continued to slide after the 10 a.m. release of the second-quarter


revision and the July

factory orders

reports. Both of these numbers are considered old by now (the factory orders report is in some ways an update of the previously released

durable goods


These figures weren't surprising, either. Factory orders rose 2.1% in July, compared with Reuters' consensus estimates for a 1.8% gain. Productivity rose 0.6% while unit labor costs surged at a 4.5% rate, fastest since the first quarter of 1994. The initial

Labor Department

estimates were 0.8% and 3.8%, so both numbers are bad news for bonds -- lower productivity with higher costs is inflationary, and it's the opposite of the way things have been going during the last few years.

But they weren't unexpected. Tom Ruff, vice president in proprietary trading at

Daiwa Securities

, said that although the economic numbers were "pretty much anticipated, they contributed to the negative sentiment."

Monthly auto sales, which are reported in drips and drabs as individual companies release sales data, rose to a 17.8 million seasonally adjusted annual rate for August, the fifth time this year the rate topped 17 million, and its strongest monthly sales rate in 33 years.

"The market was also digesting the auto sales," said Peter Kretzmer, senior economist at

Bank of America

. "That's another factor that goes under that category of accelerating demand."

In fact, nothing this week has pointed to an economic slowdown, tapering off of demand, or anything else the bond market might like, something both Kochan and Kretzmer pointed out. "Home sales are near records, the prices paid component of the NAPM was high, the productivity data, car sales -- my goodness!" Kochan gasped. "They were at a record for the month of August. Unless we get good news tomorrow, we've got problems."

Tomorrow, you're always a selloff away: The August employment report is released at 8:30 a.m. Economists are calling for a 220,000 gain in new nonfarm payrolls, and for the household unemployment rate to fall to 4.2%. Average hourly wages are expected to tick up 0.4%. How this report will factor into the Fed's decision on Oct. 5 is a tough call, Kretzmer said, save for an obvious rise or slowing in labor costs or a lower-than-expected increase in nonfarm payrolls. "If we get a bad wage number or a 4.1% unemployment, then the market would sell off more and finish pricing in a tightening," Kretzmer said.

Mitch Stapley, portfolio manager at

Kent Funds

in Grand Rapids, Mich., isn't going to do any finger-biting tomorrow: "You should come in, sit down, stick your hand in a desk drawer and slam it a few times," he said. "It would be just like a day in the bond market."


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