Publish date:

TheStreet.com's DAILY BULLETIN

October 19, 1999


Market Data as of Close, 10/18/99:

o Dow Jones Industrial Average: 10,116.28 up 96.57, 0.96%

o Nasdaq Composite Index: 2,689.15 down 42.68, -1.56%

o S&P 500: 1,254.13 up 6.72, 0.54%

o TSC Internet: 669.86 down 15.24, -2.22%

o Russell 2000: 408.90 down 5.80, -1.40%

o 30-Year Treasury: 97 11/32 down 23/32, yield 6.297%

Companies in Today's Bulletin:


Dell (DELL:Nasdaq)

Microsoft (MSFT:Nasdaq)

Martha Stewart Living Omnimedia (MSO:NYSE)

In Today's Bulletin:

o Hardware & PCs: As Dell Admits Earnings Hit, the Rest of the PC Industry Remains in Jeopardy
o Wrong! Rear Echelon Revelations: Be Wary of a Phony Rally
o Evening Update: Dell's Warning Roils the After-Markets
o Bond Focus: Bonds Reverse Friday's Rally, Brace for CPI

TheStreet.com on Fox News Channel

We put ourselves to the test this week on "Stock Drill" as Jeff Bronchickof Reed Conner & Birdwell -- and a TSC contributing editor -- goes over his favorite stock picks with Jim Cramer and Herb Greenberg.

Big market drops, big market gains. The market's been manic for months, but stocks aren't really moving that much. Does that mean your investmentsshould tread water? We'll hear what our "Word on TheStreet" panel has to offer.

Plus, we'll preview our upcoming "Cracking the Books" series. Alex Berenson introduces us to the world of earnings, and why things aren't always as good as they seem.

"TheStreet.com" on the Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET.

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Also on TheStreet.com:

Mutual Funds: Janus Adds Co-Manager to Burgeoning Worldwide Portfolio

With little fanfare, Laurence Chang has joined Helen Young Hayes on the $21.9 billion fund.


IPOs: Martha Stewart Leads the IPO Charge This Week

The markets are choppy, but several of this week's offerings appear to be making waves nonetheless.


The Invisible Mouth: Price-Data Apologists, Take Heed

Looking at some facts about the wholesale price measure that some observers prefer to ignore.


Europe: The Anglo File: Gates Braves a Look at the World Beyond His Windows

And what does he see? The Symbian consortium, setting up camp on his front lawn.


Hardware & PCs: As Dell Admits Earnings Hit, the Rest of the PC Industry Remains in Jeopardy


Eric Moskowitz

Senior Writer

10/18/99 9:41 PM ET

It took a while but


(DELL) - Get Report

finally came clean.

After a few weeks of weaving and bobbing, Dell eventually fessed up to the

impact that the Taiwan earthquake is having on its operations. For the first time in six years, the Round Rock, Texas, direct seller of computers will miss an earnings estimate.


first warned that Dell was likely to have problems in the third quarter in an Oct. 6


Faced with rising component prices, Dell realized that it could not pass the price increases on to its customers. Although Dell says its troubles are short-term, the rest of the PC industry may face a tough fourth quarter.

Last year, PC companies like



posted glowing fourth-quarter results, thanks to selling high volumes of computers at a time when component prices were low. Although this year component prices were edging higher, in the aftermath of the earthquake it is the component suppliers that have been calling the shots. For example, prices for standard memory have shot up to an all-time high of about $20 per 64-megabit chip, four times the price in June.

But it is not just memory chips. Graphics chips and liquid crystal displays are also scarce. Dell -- with its lean inventory channel --is taking a hit in its third quarter ending in two weeks. Compaq,



and other low-end PC makers such as


may take a big hit on their margins in their all-important fourth quarter.

The reason: PC makers -- like Compaq and H-P -- who sell through resellers have had to pay top dollar for components to ensure they will have enough computers ready for the big Christmas push.

"Dell will be under temporary pressure now to get components because all the indirect makers had to get their inventory components for Christmas," says an analyst at a money management firm with a large Dell position, who requested anonymity.

PC companies typically carry four to six weeks of inventory while Dell and fellow direct seller



carry about a week's worth of components. Once Taiwan production levels hit pre-earthquake levels, Dell and Gateway will benefit from the lower prices. "That's why Dell's fourth quarter should be OK," says the analyst.

Robertson Stephens

analyst Dan Niles was concerned about adequate supplies, and downgraded Dell from strong buy to long-term attractive on Oct. 1. Now he says the future doesn't bode well for the entire industry. "This news just plays into the whole theme that Y2K will affect demand and now we have Taiwan affecting supply," says Niles, who warned clients this morning with another report. "Now we know even if you can get supplies like Dell did, your margins will get hit." Robbie Stephens has done no Dell underwriting.

Low-end PC makers, especially


with its razor-thin margins, will have to be watched closely. eMachines plans to go public in the next month or so, and increasing component prices would not be an ideal way for it to enter the public arena. Compaq and H-P, two companies that have been heavily courting the sub-$500 PC user, will see their PC margins crushed in the fourth quarter.


(IBM) - Get Report

, which has been mum on Taiwan thus far, "could also get crushed," relates Niles.

Dell stock has failed to gain any momentum this year because investors feared its corporate sales -- the company's bread-and-butter division -- would slow due to Y2K. Dell should now report earnings per share of 18 cents, estimates Niles.

First Call/Thomson Financial

estimates were for 20 cents a share.

Wrong! Rear Echelon Revelations: Be Wary of a Phony Rally


James J. Cramer

10/18/99 8:30 PM ET

All good rallies start as short-covering rallies. But not all short-covering rallies lead to good rallies. That's the

conundrum we faced this afternoon with the phenomenal rise in the averages -- but not the broader market -- in the last half hour.

For us, we chose to trust neither. So if we bought 35,000

Bristol Myers

(BMY) - Get Report

at 71, we sold 5000 of it at 72. Why sell any? Because if it is pure short-covering and the bonds get clocked tomorrow, surely you have to believe that BMY will retrace every penny if not more that it made today.

But if the rally is the real thing, because the


is benign, I won't have enough long-side ammo (that's how I think of it rather than just as stock) to weather the day. So, we err on the side of caution and lighten up a bit into the strength.

I can't tell you how many times I have been faked out in my career by these short-covering rallies. We had quite a few of them last year in September and every time I bit, I got my head handed to me. That's why I am doing things in moderation. I don't want to commit and then discover that this rally was phony. I don't want our firm to buy the crazy strength of the last half hour. I want us to buy the weakness of the morning. That's when the bargains surface and the best bets are made.

What makes me feel that it was short-covering and not real buying? I saw people banging out puts and I saw people buying the


futures. I did not see or hear a lot of merchandise to buy. Remember my perch: I am seated in the middle of a bunch of traders who are constantly getting calls from brokerages informing us that they have merchandise to buy or sell. In the last half hour I did not hear customer after customer come in and look for offerings. In fact, other than a buyer of


(C) - Get Report

, I didn't hear of any big buyers.

That is why I reached the short-covering conclusion. Believe me, there are rallies where the whole Street is trying to buy stock. This was not one of them. And given that the unknowable CPI is what will determine things tomorrow, let's take a rain check until we see it before we bless the rally with more than a short-cover moniker.

Random musings:

I will be in and out of the office tomorrow, so I can't promise regular dispatches, but I will do my best.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Bristol-Myers Squibb. 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: Dell's Warning Roils the After-Markets


Eileen Kinsella

Staff Reporter

10/18/99 10:29 PM ET


(DELL) - Get Report

shook up Wall Street this evening with a warning that its third-quarter earnings will be hurt by higher-than-expected memory-chip prices.

The computer giant said it sees the memory-chip problem as temporary, but nevertheless it will damage third-quarter operating margins. Dell is slated to report third-quarter results Nov. 11; the current 28-analyst

First Call/Thomson Financial

estimate calls for earnings of 20 cents a share vs. the year-ago 14 cents.

Dell last traded on

Island ECN

at 37 9/16, down 3 3/4 from its composite close.

Lay-deees and gentleman! In this corner we have the

World Wrestling Federation


IPO, weighing in at 10-million shares priced at a hefty $17 a share. (See table below.)

And in this corner, we have the doyenne of domesticity herself,

Martha Stewart


with 7.2 million shares, weighing in at an impressive $18 a share, top range. (See table below.)

Apparently this rough and tumble stock market isn't enough to frighten these tough guys -- and girls -- away and they look like they'll come out swinging. Judging from recent volatile days, the WWF may need to put its fighting skills to use and Martha may need a headlock lesson or two to get in shape.

In other post-close news (earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

American Retirement


said it sees third-quarter earnings falling below expectations by at least 10 cents a share as it focused on buying, rather than building retirement communities. The 12-analyst estimate calls for 23 cents a share.

Aspect Telecommunications


reported a third-quarter loss of less than a penny a share, before charges, narrower than the 11-analyst expected loss of 21 cents a share, but down from year-ago earnings of 28 cents a share excluding items.

Citrix Systems

(CTXS) - Get Report

posted third-quarter earnings of 35 cents a share excluding charges, a penny better than the nine-analyst estimate of 34 cents and up from a year-ago 23 cents. All figures reflect a 2-for-1 stock split in March 1999.

Concentric Network


posted a third-quarter loss of 65 cents a share including items, narrower than the 11-analyst estimate of an 11-cent loss per share. The year-ago loss of 89 cents a share also includes charges.


(FISV) - Get Report

reported third-quarter earnings of 28 cents a share, a penny better than the 10-analyst estimate and up from a year-ago 23 cents a share. The figures were adjusted to reflect a 3-for-2 stock split effective in April 1999.

Imperial Bancorp


reported third-quarter earnings of 35 cents a share, including a charge. The nine-analyst estimate was for 35 cents a share, and the year-ago loss was 7 cents a share. No per share figures from operating income were provided.

Lattice Semiconductor

(LSCC) - Get Report

posted second-quarter earnings of 23 cents a share before items, above the 18-analyst estimate of 19 cents a share, and up from a year-ago 21 cents a share. All figures were adjusted to reflect a 2-for-1 stock split paid on Sept. 16.

Liquid Audio


reported a third-quarter loss of 28 cents a share, excluding charges, narrower than the three-analyst estimate of a 34 cent loss and wider than a pro forma year-ago loss which excludes charges.

Network Associates


posted third-quarter results of 10 cents a share, a penny better than the 15-analyst estimate of 9 cents. The year-ago loss of 11 cents includes charges.


(RYN) - Get Report

posted third-quarter earnings of 61 cents a share including charges. The single-analyst estimate calls for 60 cents a share. The year-ago figure of 45 cents a share also includes charges.

Select Comfort


reported a third-quarter loss of 20 cents a share, a penny wider than the three-analyst estimate and down from year-ago pro forma 11 cents a share.



reported fourth-quarter earnings of 48 cents a share, better than the 10-analyst estimate of 46 cents a share, and up from a year-ago 38 cents a share. The company also said it authorized the repurchase of an additional $7 million in stock, bringing its total authorization to $9 million, according to

Dow Jones



(TUP) - Get Report

reported third-quarter earnings of 6 cents a share, better than the five-analyst estimate of 2 cents a share, and a year-ago loss of 11 cents a share. Tupperware said it sees flat fourth-quarter sales and a low 20% increase in earnings.

Vitesse Semiconductor


posted fourth-quarter earnings of 26 cents a share, a penny better than the 17-analyst estimate and up from 19 cents a year ago. The company said the figures reflect a 2-for-1 stock split effected on May 26, 1998. Vitesse also said results for periods prior to the fourth quarter ended Sept. 30, 1999, were retroactively restated to account for the acquisitions of Serano Systems Corp. and XaQti Corp., which were completed in fiscal 1999.



posted third-quarter earnings of 45 cents a share, a penny better than the three-analyst estimate and up from 5 cents a year ago. The company said results are pro forma for acquired companies as if they were taxable entities.



posted third-quarter earnings of 17 cents a share, above the five-analyst estimate and up from a year-ago 4 cents a share. Zoran said it expects a minor delay in some of its shipments due to the earthquake in Taiwan but does not expect them to have a material effect on its fourth-quarter results.

In other earnings news:

Mergers, acquisitions and joint ventures

Bell Atlantic


said its wireless unit is in talks with


(CEL) - Get Report

involving a possible combination of properties in northern New Mexico.

Fairfield Communities


said it launched a strategic review under its new CEO that could include acquisitions, alliances or a sale of the company.


(MSFT) - Get Report

said it has formed a joint venture with

Telefonas de Mexico


to create a Spanish language Internet portal.

Nortel Networks


agreed to acquire



for $2.1 billion in an all-stock deal. Nortel will offer Clarify shareholders 1.3 Nortel shares for each share of Clarify.

Offerings and stock actions

Armor Holdings


said its board approved a share buyback of up to 10% of its common stock.

Crossroads Systems

said it is boosting the expected price range of its IPO to $14 to $16 a share, from $11 to $13, and the number of shares it plans to offer to 3.75 million from 3.5 million. The company provides routers for network servers and storage facilities.


American Home Products


said it was making progress on numerous experimental products including possible novel treatments for diabetes and osteoporosis. AHP said it expects to file for marketing approval for numerous drugs over the next two years. The company also said it believes its total liability for its fen-phen diet drug litigation is covered by its reserves.

Glaxo Wellcome


is set to announce a breakthrough in gene research on common diseases including adult-onset diabetes and psoriasis,

The Wall Street Journal

will report Tuesday, according to



Rite Aid's

(RAD) - Get Report

CEO Martin Grass resigned. The company said COO and president Timothy Noonan will take over as interim CEO. Rite Aid also said it would restate its 1997, 1998 and 1999 financial statements and had received a one-year extension on $2.7 billion in credit facilities. The company said it will receive a $300 million investment from

Leonard Green & Partners


Bond Focus: Bonds Reverse Friday's Rally, Brace for CPI


David A. Gaffen

Staff Reporter

10/18/99 4:50 PM ET

Uncertainty surrounding tomorrow's September

Consumer Price Index

dragged Treasuries lower and spiked the long yield above 6.30%. Traders fear the report will turn out stronger than the 0.3% forecast for the core CPI. A recovery in the


also contributed to reversing

Friday's bond rally, which was built on the back of a selloff in stocks.

The 30-year Treasury bond was lately down 21/32 to 97 12/32. The yield rose 6 basis points to 6.32%.

Overall, strategists described the activity as muted. The importance of tomorrow's indicator kept people from buying today, especially after an unexpected 0.8% increase in September's core

Producer Price Index

, released on Friday.

When stocks sold furiously Friday, the 30-year bond recovered to gain almost a point in price terms. Today the Dow tacked on most of its gains in the last half-hour of trading, sending bonds to the day's lows.

"Intraday, stocks are trading against bonds," said Tony Crescenzi, chief fixed income strategist at

Miller Tabak

. "The net of it all is that we've been creeping lower most of the day. It reflects concern not of a repeat of the PPI, but some reflection of the PPI trend."

The overall CPI, a measure of consumer inflation, is forecast to rise 0.4%, according to economists as forecast by


. Already, some believe the overall figure will jump more than that, after seeing a 1% increase in food prices in the PPI. Two traders said today's selling was partially due to dealers protecting themselves from larger-than-expected increases in the report.

"I think the market is discounting bad news, but if the number comes up substantially above expectations, I think it will trade down," said Maryann Hurley, vice president in trading at

D.A. Davidson

in Seattle.

The core CPI, considered more important because it eliminates volatile food and energy prices, has risen 0.3% or greater just once in the last eight months (April's 0.4% increase). Some economists expect that increases they've witnessed in consumer prices will flow through to the government's statistics this month. Mark Vitner, economist at

First Union Capital Markets

, said the CPI increase could surpass forecasts based on steady increases in the housing sector.

The PPI measures, very generally, increases in the prices of goods at the wholesale level. While it is common to pair the two indicators, prices of goods only account for about one-half of the CPI, meaning increases seen in the PPI will be muted in the CPI.

"Some of those factors

in the PPI will show up again in a different way, in smaller increases," said Crescenzi. Specifically, he's referring to increases in tobacco prices and car prices, both of which jumped in September's PPI report.

Beyond the CPI, the market has just

Alan Greenspan

to look forward to. The


chairman will speak at an

Atlanta Fed

conference on financial risk at 1 p.m. EDT. Greenspan jawboned the stock market lower last week by warning against the current valuation of asset prices.


stock market reaction was really surprising," said Crescenzi, adding that last Thursday's

speech repeated themes the chairman has expressed previously. "Greenspan really just tried to perform his duty as Fed chairman, which is to inject some prudent caution into the financial markets."



Street Sightings

Gary B. Smith will be speaking to the Association for Technical Analysis Tuesday, Oct. 19. The event will take place at the Crowne Plaza Hotel, 14315 Midway Road, Dallas. Registration and refreshments at 6:30 p.m. The meeting starts at 7 p.m. For more infomation call AFta at 214.743.1486

Erin Arvedlund and Options writer Lewis Borsellino will be chatting on Yahoo! at 5 p.m. EDT on Tuesday, Oct. 19. Register for Yahoo! Chat at: chat.yahoo.com. It's free!

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