daily10-06-99 - TheStreet


Publish date:

TheStreet.com's DAILY BULLETIN

October 7, 1999


Market Data as of Close, 10/6/99:

o Dow Jones Industrial Average: 10,588.34 up 187.75, 1.81%

o Nasdaq Composite Index: 2,857.21 up 57.54, 2.06%

o S&P 500: 1,325.40 up 24.05, 1.85%

o TSC Internet: 708.74 up 40.72, 6.10%

o Russell 2000: 429.76 up 3.75, 0.88%

o 30-Year Treasury: 99 11/32 up 3/32, yield 6.170%

Companies in Today's Bulletin:

Dell (DELL:Nasdaq)

Yahoo! (YHOO:Nasdaq)

Advanced Micro Devices (AMD:NYSE)

In Today's Bulletin:

o Hardware & PCs: Dell Earnings Could Take a Hit on Taiwan-Related Supply Snags
o Wrong! Dispatches from the Front: Getting the Better of Outrageous Fortune -- for Now
o Evening Update: Yahoo! Surges After-Hours; AMD Posts Loss but Beats Estimates
o Bond Focus: Bonds Relief Rally Causes Indigestion

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Also on TheStreet.com:

Year 2000: The Real Deal on Y2K: Fears Dim as 2000 Approaches

Much to the chagrin of the doomsayers, intense preparations have helped ameliorate fears of massive Y2K glitches.


Tech Savvy: AT&T's Hindery Is Out, But the Soap Opera's Not Over

The friction between Hindery and Excite@Home kind of makes you wonder if he was pushed. Now, the search for a successor.


The TaskMaster: Window Redressing

A few outsized share movements among the REITs lead some investors to assume the worst. They're probably right.


Latin America: Ecuador's Brady Bond Default Heats Up Concern Over Emerging Markets

As the nation belatedly struggles to come to terms with debt restructuring, international investors and debtor nations are watching closely.


Hardware & PCs: Dell Earnings Could Take a Hit on Taiwan-Related Supply Snags


Eric Moskowitz

Senior Writer

10/6/99 8:18 PM ET

The uncertainty factor is high in Round Rock, Texas as


(DELL) - Get Report

readies for its fall analyst meeting Thursday morning. Dell's super-efficient supply chain could end up being its Achilles heel, leaving it with possibly the highest exposure of any computer company to the Taiwan earthquake.

The result may be that Dell will guide the Street to lower its earnings estimates for the company's third quarter, say analysts who follow the company.

Last week, Dell CFO Tom Meredith told anxious money managers during a break at the

Banc of America

investment conference that it was too early to gauge the impact of the Taiwanese earthquake on its third quarter, which ends at the end of this month, according to a money manager who was present.

Since Dell carries little inventory, its reliance on Taiwanese suppliers may impact its ability to churn out PCs, laptops and workstations. Although its stock price has remained relatively stable since the Sept. 21 quake, both money managers and analysts are beginning to think it's likely that Dell will fail to meet earnings expectations for the quarter.

"Dell has a heavy Taiwan exposure and that should cause around two quarters of disruption at the company," says Don Young, a computer analyst at


who has had a neutral rating on Dell since May. PaineWebber has no underwriting relationship with Dell.

The analyst consensus estimate on

First Call/Thomson Financial

calls for Dell to earn 20 cents a share for the quarter.



CEO Carly Fiorina warned the Street on Friday that Taiwan -- along with poor Unix sales in North America -- would push year-over-year revenue growth to the low end of initial projections (10% to 13%) for its fourth quarter ending Oct. 31. Fears of Taiwan's impact drove H-P stock down as much as 20% over the last two weeks.

H-P's problems could extend to Dell, says

BancBoston Robertson Stephens

analyst Dan Niles, who lowered his Dell rating from a buy to long-term attractive Friday.

Salomon Smith Barney's

Rich Gardner, who rates Dell shares a buy, warns that Dell's earnings could fall to around 16 to 18 cents per share if Dell's production is hurt by supply problems. Neither firm has participated in any recent Dell underwriting.

"The direct model works both ways," says Kai-Teh Tao, a money manager with

Watson Investment Partners

who is not a Dell investor. With its low inventories and fast turnarounds, the money manager says Dell benefits the most when prices fall, as they did for much of 1999. But when the environment changes and rising component prices come into the equation, "the direct model works against you."

Spot prices for DRAMs, the most common form of PC memory, have shot up to 16 1/4 in October from 4 in July and contract pricing has risen to around 10 from 5, points out Gus Richard, an analyst for San Francisco-based

Emerging Growth Management

, a money management firm which invests in small-cap companies. Richard, a former semiconductor analyst for

Hambrecht & Quist

, says Taiwan chip manufacturing plants will lose two weeks of supply due to the quake at minimum and another "three to six weeks of production wafers when all is said and done due to electricity outages and ramp-up problems in yield."

Apart from memory-chip shortages, PC companies are finding that graphic chip inventories are also low. Approximately 80% of graphic chip sets are produced in Taiwan for laptops and personal computers, according to Danny Lam of


, a tech research firm. "Week one after the quake was a total write-off, week two was at only 50% capability and week three is approaching prequake levels of production," reports Lam.

Toronto-based graphics chip maker

ATI Technologies


, the world's leading supplier of video and 2D/3D graphics accelerators to PC outfits, just told third-tier computer customers there would be a 4- to 6-week delay in supply due to the quake, notes Lam. But an ATI spokesman says the earthquake problems have had little impact so far. "It's a net neutral situation for us and so far there is no indication that we are in a delay situation as of yet," says ATI Technologies spokesman Brian Chadderton.


(NVDA) - Get Report

, which recently has had some key design wins for its graphics cards with



and Dell, said Sunday its production has been affected by the Taiwan quake, although it won't impact earnings until its fourth quarter.

Nevertheless, even first-tier PC makers such as Dell will be forced to pay more for components across the box, says Tao.

Niles agrees. "Margins are under tremendous pressure given the price premiums being paid," the BancBoston analyst writes in his Oct. 1 report.

PaineWebber's Young says Dell can't ship its new Dell Inspiron, the 3700, for 30 days due to the quake and is instead promoting its 3500 line -- an older model -- after knocking $200 off the list price. This kind of price manipulation, he suggests, could crimp margins. A Dell spokesman responds that Dell isn't experiencing any delays on the Inspiron line yet due to Taiwan nor on any of its other PC-related products.

Last week, Dell CFO Meredith told


he was comfortable with analyst estimates. If the component shortage headaches persist, Dell could end up with one heck of a migraine come earnings announcement time.

Wrong! Dispatches from the Front: Getting the Better of Outrageous Fortune -- for Now


James J. Cramer

10/6/99 6:41 PM ET

To take the model up big, or to tweak it, that is the




The call was nothing but Net as Yahoo! blew away every metric -- net talk for things that had to be met in order to please everybody who was long it or cheerleading for it.

But the Street can be a harsh place when it comes to expectations. The real yahoos among the Yahoo supporters will have to be reined in aggressively if this stock is going to continue to rally big to the upside.

Expectations are such a tough game. Analysts want to ratchet them up in order to make the case for table thumping. The company doesn't want to get things out of control for fear that there might be some slippage.

Nonetheless, I am sleeping easy on this one for now.

Someone please, fill me in on the bear case, as I just can't see it.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo! 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: Yahoo! Surges After-Hours; AMD Posts Loss but Beats Estimates


Eileen Kinsella

Staff Reporter

10/6/99 8:34 PM ET



gave investors a reason to shout it out. The Internet behemoth reported third-quarter earnings of 14 cents a share before charges, ahead of the 26-analyst estimate of 9 cents a share, and up from the year-ago 2 cents before items. (Year-ago results were restated to reflect the acquisition of


.) The company said third-quarter revenues more than doubled to $155 million, compared with a year-ago $66.3 million and that September traffic was 385 million page views a day, up from 310 million in June. The stock was making noise in after-hours trading, leaping 7 7/8 to 183 3/4 on

Island ECN

(see below).

Tech heavyweight

Advanced Micro Devices

(AMD) - Get Report

also reported third-quarter results. AMD posted a loss of 72 cents a share, narrower than the 18-analyst estimate of a loss of 97 cents but worse than the year-ago earnings of 1 cent. The company cited strong sales of its flash memory chips, which it said grew by 28% over the preceding quarter, as well as its new


chip, which is being sold at higher margins than its K-6 processors. AMD said it has the ability to make more than 1 million Athlon processors in its current quarter.

After-Hours Markets


Don't Look Back

dominated the pop charts 21 years ago this week. Yahoo! took a cue from the arena rockers' album title, leading after-hours trading on Island ECN. As noted above, the company just released third-quarter earnings that handily topped analyst expectations. It was easily the heaviest-traded stock on Island, doubling

Global Crossing


, its closest competition.

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.


Eric Gillin

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

BMC Software


said second-quarter profits would fall shy of analyst expectations but revenue would be in line with forecasts. The company said earnings were hurt by delays in closing large licensing transactions, particularly in Europe. BMC said it sees net profits in the range of $101 million to $106 million, or 40 cents to 42 cents a share, excluding charges. The 24-analyst estimate calls for earnings of 43 cents.

JDA Software


said it expected third-quarter profits to fall below estimates, because of a drop in software licensing revenue related to Y2K fears. The company said it sees earnings at 1 cent a share or break-even, while the six-analyst estimate calls for earnings of 3 cents a share.


(PEP) - Get Report

said it was comfortable with fourth-quarter estimates and reiterated its confidence that beverage demand in North America would bounce back. The 15-analyst estimate calls for earnings of 32 cents a share in the fourth quarter. PepsiCo earlier Wednesday reported third-quarter earnings of 34 cents a share, beating estimates by a penny.



warned it sees quarterly earnings below the current seven-analyst estimate of 35 cents.

Trimble Navigation

(TRMB) - Get Report

said it sees third-quarter earnings above analyst estimates and in record territory, due to savings from a manufacturing outsourcing deal. The company said profits would come in at 17 cents to 20 cents a share, well above the single-analyst estimate of 11 cents.



said it expects third-quarter earnings to significantly exceed expectations as cost controls contributed to higher operating margins. The company said it sees earnings of 44 cents a share, well above the five-analyst estimate of 31 cents.

Mergers, acquisitions and joint ventures

Barnes & Noble

(BKS) - Get Report

agreed to buy retailer

Babbage's Etc

for $215 million, in an effort to extend its reach into the video game and software market. The mammoth bookseller said it expects the acquisition of Babbage's, which operates 495 stores under various names, to increase earnings by 10 cents a share in the fourth quarter, and added that the it is very important to the positioning of its online business,




Premier Parks


announced a number of agreements with

Warner Bros.

, a unit of

Time Warner


. A long-term licensing agreement will allow Premier to use Warner Bros. cartoon characters at its parks in Europe and Latin America, though terms were not disclosed. Premier also agreed to buy Warner's

Movie World Germany

theme park near Dusseldorf, and will team up with Warner on a $400 million theme park in Spain.

Separately, Premier said it was very well positioned to meet its full-year estimates. The eight-analyst estimate calls for a loss of 45 cents a share for 1999.

Network Solutions




(MSFT) - Get Report

signed an agreement with it, to provide country-specific domain name registration services in a number of countries.

Offerings and stock actions

Goldman Sachs

priced 4 million shares of

Calico Commerce


at $14 a share, the top of the expected $12-to-$14 range. Calico sells software and services that facilitate Internet sales.

Neuberger Berman's

(NEU) - Get Report

long-expected IPO was priced at $32 a share by lead underwriter Goldman Sachs. The investment advisory firm, which is offering 7.25 million shares, had scrapped plans to go public last October because of fickle market conditions.



6 million-share IPO was priced top-range at $16, by lead underwriter Goldman Sachs. The company is an online destination for prescription drugs, herbs and other medical supplies.

Travelers Property Casualty

(TAP) - Get Report

said it would buy spend up to $200 million to buy back its class A common shares. The company, a unit of


(C) - Get Report

, said a prior $150 million share repurchase, announced in August 1998, was nearly complete.

Morgan Stanley Dean Witter

priced 11.9 million ADRs of


(UGP) - Get Report

at $13.50 each, the bottom of the estimated range. Yesterday, the Brazil-based company lowered the range to $13.50 to $14.50, from an earlier $16 to $18 estimate. One ADR is equal to five ordinary shares.

Bond Focus: Bonds Relief Rally Causes Indigestion


David A. Gaffen

Staff Reporter

10/6/99 4:56 PM ET

So much for the relief rally.

The morning after Treasuries sold

furiously on the back of the Fed's decision to adopt a bias toward raising interest rates sometime in the future, it appeared as if the market was going to recover some lost ground.

Didn't happen.

Not with the

employment report

scheduled for release at 8:30 a.m. EDT Friday.

"This was a knee-jerk reaction from yesterday's sharp selloff," said Mike McGlone, vice president of trading at

Aubrey G. Lanston

. "I don't think there's any potential to move either way without a go-ahead from payroll. Anything in between is ham on rye."

At one point today, the 30-year bond had regained over a quarter point, but, of late, the benchmark Treasury was up just 1/32 to 99 9/32, leaving the yield at 6.18%. However, the rest of the yield curve, two-year, five-year and 10-year securities, were down on the day.

Friday's release of the September employment report and yesterday's Fed meeting gave the market two seminal events to hang itself on this week. And bonds swung from the gallows pole yesterday. The Fed, in announcing the bias, seems to have satisfied no one. Raising the fed funds target by 25 basis points from its current 5.25% would have been a tremendous shock, but it could have convinced the market that the committee was done raising rates for the rest of the year. Retaining a neutral stance would have given the market a clear signal it wasn't going to touch policy until after the ball drops on 2000.

"There's the threat of additional tightenings hanging over the market, but they didn't convince the investors that they're being preemptive and determined to stay ahead of inflation," said Jim Kochan, Treasury market strategist at

Robert W. Baird


Generally, while the Fed is in a cycle of raising interest rates it tends to adopt a bias toward tightening interest rates at meetings when it doesn't pull the trigger. But since the Fed is now disclosing its intentions following each meeting, the market puts more stock in the adoption of a bias, though the Fed said in its

statement, "such a directive did not signify a commitment to near-term action."

The long bond outperformed shorter-dated Treasuries today. The two-year note fell 2/32 today and the 10-year note was unchanged. Short-term securities are linked closely to changes in the funds rate, while the 30-year bond reacts to the threat of rising inflation.

The next good inflation indicator is the average hourly wages component of the jobs report. The


consensus estimate is for a 0.3% increase in average hourly wages, which would put the year-over-year rate of increase at 3.6%, versus 3.5% in August. Already, economists are talking about how the temporary Exodus created by Hurricane Floyd -- where millions of people fled several states -- is going to muddle and possibly affect this report. Many have said it could weaken the

average weekly workweek

figures and possibly other components. The forecast for new nonfarm payrolls is 218,000.

There's one more potential stumbling block between now and the payroll release. The

European Central Bank

, whose members have sounded hawkish lately, is scheduled to meet tomorrow. ECB President

Wim Duisenberg

and member

Otmar Issing

both raised concerns last week about price inflation picking up in the EMU. Raising rates has several nasty implications for U.S. bonds -- as European bond yields rise, investors tend to sell U.S. bonds in sympathy. Also, higher rates could bolster the euro against other currencies, including the dollar, reducing the attractiveness of U.S. financial assets.

"I don't think they'll raise rates," said Mike Cloherty, senior market economist at

Credit Suisse First Boston

. "They're more likely to hold off, but it's a fairly close call. Most likely they'll leave it unchanged, but it's a risk that the U.S. markets can't ignore."

The ECB's refinancing rate (its version of the funds rate) is currently 2.50%.



Street Sightings

Marcy Burstiner will be chatting on Yahoo! Thursday, Oct. 7 at 5 p.m. EDT. Register for Yahoo! Chat at: chat.yahoo.com. It's free!

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. For more information, see http://www.db.com/wows/.

Copyright 1999, TheStreet.com