TheStreet.com's DAILY BULLETIN
September 29, 1999
Market Data as of Close, 9/28/99:
o Dow Jones Industrial Average: 10,275.53 down 27.86, -0.27%
o Nasdaq Composite Index: 2,756.25 down 5.50, -0.20%
o S&P 500: 1,282.20 down 1.11, -0.09%
o TSC Internet: 631.30 up 2.30, 0.37%
o Russell 2000: 418.49 down 3.37, -0.80%
o 30-Year Treasury: 100 16/32 down 1 01/32, yield 6.058%
Companies in Today's Bulletin:
In Today's Bulletin:
o Internet: Hostess With the Mostest: Exodus vs. Intel
o Wrong! Dispatches from the Front: Seeing October on the Horizon
o Evening Update: USWeb/CKS Jumps on Investment From Microsoft; After-Hours Trading Update
o Bond Focus: Cross of Gold Snares Treasuries
Also on TheStreet.com:
Banking: Chase Nods to Equity Ambitions With H&Q Deal
The deal looks good, but will be viewed mostly as a test run for a bigger, industry-changing deal.
Commentary Features: Leaders Fiddle as World Burns
The officials gathered at the IMF/World Bank meetings in Washington are drinking, dancing -- and, oh yeah, fighting poverty.
Media/Entertainment: Disney May Be Poised to Take a Big Write-Off
Analysts say a fiscal fourth-quarter write-off could include costs related to Monday Night Football, the Jeffrey Katzenberg settlement and retail store closings.
The TaskMaster: Goldilocks Eats the Bears
Analysts see the surge in gold futures in part as a reaction to an artificially depressed market.
Internet: Hostess With the Mostest: Exodus vs. Intel
Spencer E. Ante
9/28/99 9:39 PM ET
SANTA CLARA, Calif. -- For
, it's getting harder to be the big shot in the Web-hosting playground.
officially launched its Web hosting business. Back in April, when Intel first announced it was entering the data center business, many observers said the chip giant was far away from competing against Exodus. But as the venture takes shape, it's getting clearer that Intel will be butting heads with Exodus, an encounter that no company looks forward to.
"It's a strong, significant move," says
research manager Steve Murray. "They're going to be serious players."
The new Intel business unit, to be called
Intel Online Services
, includes a 85,000 square foot data center in Santa Clara, Calif., that has been in operation since Sept. 1, and a testing facility in Folsom, Calif.
With the facilities, Intel wants to manage e-commerce Web servers and applications. It's part of Intel's strategy to be the "building block supplier of the Internet economy," according to Intel executives. The market for data and application hosting services will reach as high as $20 billion by 2003, they say.
Intel is far from finished: The company plans to spend more than $1 billion to open 12 data centers by the end of 2000, including ones in Japan and England. Initial customers include the
Shopping Service, and
. Executives say they expect thousands of customers in the coming years.
"We're intending to go after this in a big way," says Michael Aymar, vice president and general manager of Intel Online Services.
For months, the two companies seemed unlikely to collide. Exodus has been targeting the high end of the Web-hosting market, whereas Intel said in April that it was going after companies less experienced with the Internet.
Since then, Exodus started swimming downstream by selling preconfigured hardware that enables newbie companies to get up and running quickly. Intel, meanwhile, started its way upstream. "We will be targeting all sizes of customers," says Aymar, a 23-year Intel veteran. Indeed, Aymar says Intel is now better equipped to handle the cutting edge companies better than small businesses.
And yet Exodus downplays the Intel threat. Speaking to a packed room at the
Banc of America Investment Conference
, Exodus CEO Ellen Hancock said that it was not competing directly against Intel.
Exodus is facing other formidable competitors. When
announced plans on Sept. 14 to build up to 26 new data centers and double the size of its existing centers, Exodus shares dropped nearly 7% in one day. At the BofA conference, AT&T Internet Services President Kathleen Earley reiterated Ma Bell's intention to aggressively go after the Web hosting market.
One Net-savvy company Intel snagged is
. Quokka CEO Alan Ramadan says his company considered five other hosters before deciding to choose Intel for its track record and commitment to developing platforms for the digital distribution media.
And why trust Intel -- a company with little to no experience in developing Web-based applications? "They have delivered against everything they've said over the last six months," says Ramadan. "Our technology folks have confidence in their ability to execute."
Of course, that Intel is an investor in Quokka and has worked with the giant for several years developing content optimized by Intel chips helped build its confidence level in Intel Online Services. Currently, Quokka is using
for its hosting needs, but Ramadan says it will shift its servers over to Intel during the next six months.
Exodus and its competitors have an edge with a sizeable lead in the hosting market. Exodus has acquired more than 1,300 customers and plans to end this year with 22 data centers across the globe. And Intel still has to overcome its reputation that it is not a service company whereas Exodus claims 30% of its revenue by year's end will come from managed hosting services.
"Intel has a great name but what's their name in?" asks Matt Ankrum, assistant portfolio manager with
, which is long Exodus. "It's in manufacturing."
Some analysts also argue that Intel will be hobbled by a penchant for pushing Intel-based hardware. Intel's Aymar, however, stresses that Intel will support whatever platform its customers want, no matter how much it hurts to have
computers inside an Intel facility.
"It does cause a certain amount of unhappiness," says Aymar, referring to the Sun hardware. "But it does provide motivation to the engineering division."
Last but not least, Intel must prove that it can master the art of network services, the most critical service that a hoster provides. And on this front it appears to be weak. For the launch, Intel only announced a partnership with one network service company,
unit. When asked how many peering relationships it will acquire through this relationship, company executives declined to offer a number. By contrast, Exodus claims peering relationships with more than 200 ISPs.
"I think you need two network providers," joked IDC's Murray. "I'm sure it's on their list but I don't think
Intel is going to be the 800-pound gorilla that they are in the chip space."
Wrong! Dispatches from the Front: Seeing October on the Horizon
James J. Cramer
9/28/99 6:44 PM ET
Has everybody who wanted to sell already sold?
That, after all, is how bottoms get formed. To me, for stocks like the financials and the retailers, the answer may at last be yes. These stocks did not seem to attract the momentum to the downside in the down-200 carnage that I expected. In fact, this marks the first time in ages I've seen this kind of relative strength in either group.
But for technology, I can't be sure. That's because right now the world is divided between two groups: the underperformers, who desperately need to be in to get ahead of the
, and the outperformers, who did it all with tech and don't want their lead washed away in profit-taking. I think the latter is a big, big cohort, and I think it will be a continual source of selling pressure in the coming month.
I make no bones about the fact that I was bullish today and expected the turnaround. I just didn't see that kind of velocity to the downside that told me there was much more pain ahead. I think we have to rally off the oversold position to surprisingly high levels before we get the big down October day I expect has to happen. To plan for it now -- meaning to go short now -- I think would be a huge mistake.
The selloff will occur because to give back a big lead is unforgivable in our business, especially when it comes to the fourth quarter. Many of your investors have psychologically built in that gain. You take it away from them now, and you will have all heck to pay. But the only way to assure that such a decline won't take you down is to sell ahead of the decline. Which is why October is always a tough month.
For now, I expect clear sailing, though, until we get to a more exalted level and when far fewer people are expecting something big. It doesn't happen when people are as bearish as they are now.
weigh in on this chat on whether
or on this
message board. I find both very helpful. When I think the e-brokerage business is going to start going up, I think I will take a hard look at
because of the message boards. That was a real value-added feature for me. We are getting real forums without the nonsense that typically sidetracks community efforts. When you have to give up your name and when you are at a paid site, you tend to get a pretty high level of discourse. Let's all make each other some money!
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. 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: USWeb/CKS Jumps on Investment From Microsoft; After-Hours Trading Update
9/28/99 8:45 PM ET
will take a $67.5 million stake in the company over the next year, supporting new application services and technologies. In 18 months, USWeb, in accordance with the deal, will give Microsoft royalties on service offerings associated with the technologies. In addition, Microsoft agreed to buy warrants for $14.9 million, enabling the company to buy 1 million USWeb/CKS shares for $27.59 each at any time over the next five years. USWeb rocketed 4 1/8 to 34 3/4 in after-hours trading on
Separately, Microsoft has factored into its budget $3.8 billion for research and development in fiscal 2000, a 36% increase from $2.8 billion in fiscal 1999, according to documents filed today.
warned investors that, although third-quarter earnings are in line with analysts' consensus estimates of 32 cents a share, it expects to post a 1% decline in sales, citing slow economic conditions and unfavorable exchange rates in Latin America and Western Europe.
Many stocks took their cue from the Boss and danced in the dark in Island ECN's after-hours trading. Fiery
, hot off today's IPO, was up 10 1/2, while USWeb was up 4 1/8.
were all up more than a point on the exchange.
Elsewhere in cyberspace,
toyed around with leader
Toys "R" Us
, unchanged on 2,000 shares.
Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EDT. Prior to Sept. 15 Island offered trading from 8 a.m. to 5:15 p.m. EDT
MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter's (MWD) Discover Brokerage and Mellon Bank's (MEL) Dreyfus 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.
updates the most active issues on both MarketXT and Island ECN in Got a Minute? and in the Evening Update.
In other postclose news (earnings estimates from
First Call/Thomson Financial
; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
reported third-quarter earnings of 36 cents a share, missing the four-analyst estimate of 37 cents and the year-ago 28 cents.
warned investors that it would post a greater loss for its fourth-quarter than the three-analyst consensus estimate of a 15-cent loss. The company blamed delays in obtaining export licenses and softer sales for the disappointing results.
said it is on track to meet the third-quarter analysts' consensus earnings estimate of 64 cents a share.
blamed weak financial performance at two operations for disappointing third-quarter and second half results. The company said that it expects to report a loss for fiscal 1999, greatly missing the analyst estimate of a 54-cent gain.
warned investors that it expects to post third-quarter earnings between 5 and 15 cents a share, greatly below the 15-analyst estimate of a 49-cent profit, citing price competition and increased claims in its commercial and personal divisions.
warned investors that it would post $1.7 million third-quarter revenue loss, with results falling below the analysts' consensus estimate of 52 cents a share. The company cited computer database problems for the weak results.
Mergers, acquisitions and joint ventures
said it had been awarded
approval for its planned acquisition of Canada's
Newcourt Credit Group
in a stock deal valued at $2.7 billion.
said it is considering selling its natural gas distribution division. The company announced in June that it would separate its business divisions including baseload generation, peaking units, gas operations, electric transmission and distribution and marketing in order to comply with a new Ohio law that disallows energy companies from grouping their businesses.
announced its plans to sell its
Energizer Power Systems Original Equipment Manufacturer
division to Tucson, Ariz., based-tech company
, for an undisclosed amount. The deal will be completed by October.
said it forged a $240 million agreement to purchase
, in an effort to increase its financial services. The transaction calls for Wells Fargo to issue $18.75 worth of common stock for each share of Ragen McKenzie, about a 6% premium to today's closing price of $17.63. Wells Fargo said its own stock price could alter the price of the deal.
Offerings and stock actions
set a 2-for-1 stock split.
(NTSL:Nasdaq) 3.7 million-share IPO priced top-range at $13 a share through
BancBoston Robertson Stephens
(SPNX:Nasdaq) 8 million-share IPO priced below-range at $14.50 a share through
Credit Suisse First Boston
said that it has axed plans for its planned 3.5 million-share secondary offering. The company blamed current market conditions for the cancellation and said that it does not feel that its shares' current market price indicates the actual value of the stock.
American Home Products
validated reports that it has been negotiating for months to arrive at a national settlement with former fen-phen users. The controversial diet pill, which can contribute to potential heart valve damage, has sparked 4,100 lawsuits from former users alleging that they were not full warned of the drug's side effects of the
announced its plans to shut down 17 of its 49 stores, in an effort to regain profits. The retailer, which filed for Chapter 11 bankruptcy protection, said roughly 400 full-time employees, which account for 1/4 of its workforce, could be left out of work as a result of the closings. Filene's expects to close the stores by the end of the year.
said that it has arrived at an agreement with the
Securities and Exchange Commission
regarding a probe into accounting irregularities in April 1997. Material Sciences complied with a cease and desist order and neither admitted nor denied the SEC's findings.
Bond Focus: Cross of Gold Snares Treasuries
9/28/99 5:27 PM ET
The bond market hung itself upon a cross of gold today.
As the price of the precious metal that once upon a time served as a reliable leading indicator of inflation rocketed for the second straight day, rising to levels not seen in over a year, Treasuries -- especially that benchmark long bond -- got sold. Heavily. The bellwether 30-year issue fell a full point to 100 16/32, lifting its yield 7 basis points to 6.09%.
It mattered not that the huge, huge rally in gold does not appear to have anything to do with inflation expectations.
Gold began its charge yesterday, after an announcement on Sunday by 15 European central banks, which control 70% of the world's monetary gold, that they will restrict sales of the metal for the next five years. Today the spot price rose 26.51, or 9.4%, to 308.80, its highest close since April 1998.
Investors sold bonds as gold rose, market mavens said, in part out of fear that investors would sell bonds as gold rose.
Selling Treasuries because the price of gold is going up is sane,
Dresdner Kleinwort Benson
senior market economist Kevin Logan said, "only if you think everyone else is going to do it. Then you better get out of the way."
Michael Moran, chief economist at
, added: "If gold were skyrocketing because inflation expectations were changing, then it would be a rational move. But it seems clear that that's not what's involved -- that it's just a supply issue, a technicality related to this market."
But regardless of whether a much higher price for gold (assuming the gains endure) ultimately means higher prices of anything besides jewelry, the metal's rise deeply infected the widely watched
Bridge/Commodity Research Bureau Index
of commodity prices. The Bridge/CRB Index is an ingredient of many people's inflation models, so its rise to a 14-month high today may also have had a role in the bond selloff, Logan said.
The CRB rose 3.54 today to 207.97, its highest close since July 1998. That came on top of a 1.74-point gain yesterday. Bridge/CRB managing director Bob Hafer said gold accounted for 1.03 points of today's gain and 0.59 points of yesterday's.
Michael Pianin, vice president at
, said the sudden focus on the rising price of gold and any possible inflationary implications makes the price components of the manufacturing reports due out later this week "very, very important." Both the
Puchasing Managers' Index
due out on Friday and the
Chicago Purchasing Managers' Index
slated for Thursday include a measure of manufacturers' prices for raw materials. "While the Fed's forecast and most Street forecasts are that inflation is going to stay tame, God forbid those price indexes rise a lot, because that will throw the
right back into the picture for next Tuesday," he said, referring to the next meeting of the Fed's monetary policy committee. Currently, the consensus is that the Fed will not raise interest rates again on Oct. 5.
Bond watchers were highly attuned today to the fact that the stock market's woes, which were such a boon for bonds on Friday, didn't send any money bonds' way. They said it was an indication that both markets were concerned about the inflationary implications of the move in gold.
The better performance of shorter-maturity Treasury bills and notes compared to the riskier long bond is another indication of that, Logan said. "It's probably more a worry about risk assets," he said.
There was little else for bond traders to pay attention to today besides gold. There were no market-moving economic indicators on the calendar. For amusement, however, there was
, published on
The manager of the world's largest bond fund,
Pimco Total Return, is as bullish on Treasuries as he was in his August letter. He said the nine-year economic expansion is in its homestretch, and that this is a period "of speculative excess in the stock and bond markets alike," in which Treasuries, agencies and federally guaranteed mortgage-backed securities are "safe havens in the brewing storm."
But if it was short on market-related surprises, Gross' letter was long on information about the gaunt fund manager's beauty standards. Complete with a dig at
Tori Spelling. No joke.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
Jamie Heller will be speaking at the Women on Wall Street 1999 Conference Thursday, Oct. 7. This year's topic: 24 Time Zones, One Market: Succeeding on a Global Scale.
Copyright 1999, TheStreet.com