TheStreet.com's DAILY BULLETIN
December 23, 1999
Market Data as of Close, 12/22/99:
o Dow Jones Industrial Average: 11,203.60 up 3.06, 0.03%
o Nasdaq Composite Index: 3,937.30 up 26.15, 0.67%
o S&P 500: 1,435.99 up 2.56, 0.18%
o TSC Internet: 1,148.10 down 10.97, -0.95%
o Russell 2000: 477.94 up 2.15, 0.45%
o 30-Year Treasury: 95 21/32 up 2/32, yield 6.460%
Companies in Today's Bulletin:
Veritas Software (VRTS:Nasdaq)
In Today's Bulletin:
o Internet: Shortfall Saps Corel Stock as Linux Claims Take Back Seat to Performance
o Wrong! Rear Echelon Revelations: Making Mistakes When the Heat Is On
o Evening Update: Microsoft Adds a CFO, Qualcomm Subtracts a Business Division in Evening Action
o Bond Focus: Bonds' Attempt at Rally Is Unsuccessful
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Also on TheStreet.com:
Software: Microsoft Watchers Comfortable with Maffei's Successor
Though the departure came as a surprise, John Connors is considered a strong replacement.
The Invisible Mouth: Print Shop: What to Expect in the Durable Goods Numbers
Padinha's spreadsheet says expect a small rise, but intuition has him thinking big.
Networking: Tellabs Snaps Up a Start-Up
As expected, the company announces an acquisition, and some say there's more ahead.
Europe: The Anglo File: Wise Monkey Hopes to Cash In on Video-Game Business
Its system of funding has its merits, but that doesn't exactly translate into a lot of cash.
Internet: Shortfall Saps Corel Stock as Linux Claims Take Back Seat to Performance
12/22/99 7:41 PM ET
In today's market, a rising tide lifts all boats -- at least until investors are confronted with the leaks.
That appears to be the story behind the speedy rise and fall of Canadian software company
. The company's stock, which quadrupled in about a month thanks to market frenzy over the prospects of the free Linux operating system, got pummeled Wednesday following Corel's disclosure that revenue for the fourth quarter ended Nov. 30 would fall well short of expectations, and that the company's expected quarterly profit would instead be a loss.
The company's move in recent weeks from below 10 to 44 1/2 and back down again (it closed at 13 3/16 on Wednesday, down 5 3/8) illustrates how obsessions with hot technologies like Linux and business-to-business infrastructure are causing return-happy, risk-dismissive investors to chase after any company affiliated with a sexy trend -- no matter what its prospects look like.
"Pretty much everything that people have seen as a Linux play has gone to the moon," says Hadar Pedhazur, founder of venture capital firm
, which invests in software-focused companies.
Like Linux market darling
and other companies, Corel is hoping investors will judge it on the potential revenue it can reap from products related to Linux, essentially a free operating system competing with
. But if investors are banking on future performance, companies like Corel force them to overlook a lot of past results.
Draw Your Own Conclusions
For starters, it appears that demand for Corel products just isn't what it used to be -- particularly after the company's WordPerfect and other programs got their clocks cleaned by Microsoft in the office software suite category. Corel says it expects to report fourth-quarter revenue of about $61 million, down from $67.2 million in the same period a year ago -- a shortfall related not to its new version of the Linux operating system, which shipped in the final days of the quarter, but to its pre-existing product line. Revenue was well below the $80 million forecast in late September by
analyst David Wright, one of the few analysts covering the Ottawa-based company. (Nesbitt Burns hasn't done recent underwriting for Corel.)
"In certain areas, the rate of consumption surprised us," said Chief Financial Officer Michael O'Reilly in a conference call Wednesday. O'Reilly announced his resignation from the company last week, a move that he wouldn't discuss in the call other than to say it was unrelated to today's news.
Coffee or Tea?
On the call, President and CEO Michael Cowpland put as positive a spin as he could on the shortfall. "This setback in the Windows market will encourage us even further to push hard to explore the potential of Linux," he said, as if the discouraging surprise in the current business was a good thing.
Corel's strategy is to make money off the free Linux platform by selling Linux versions of its WordPerfect Office suite and other software for use on desktop computers. But that won't be easy. As Wright has pointed out, Microsoft applications written for Windows may work just fine on Linux computers. It's unclear, moreover, when and if Linux will be accepted as a standard operating system on desktop machines, as opposed to behind-the-scenes servers.
And, unfortunately for Corel, this is not the first time the company has trumpeted new technology as a promising source of revenue for the company. In 1996, the company talked about how it was going to build a version of WordPerfect for Java, the hot computer language of the moment. But that experiment never paid off.
Derek Burney, executive vice president of engineering for Corel who is in charge of all its software development, says the two situations are different. "Linux, unlike Java, is a proven technology, and it's here today," Burney explains. "Java was forever a technology trying to catch up with the hype."
Well, that description of Java pretty much matches that for Linux these days, doesn't it? No, Burney says, the hype this time around centers on the revenue-generating potential of Linux; unlike Java, the technology is above question. "It's rock solid, and it's free and open," he says. "And it makes for an incredibly powerful combination."
The Long Haul
In any event, it looks like a long haul for Corel, which expects to release its first Linux-based office suite and graphics software next year. The company's strategy of using the Linux operating system to build market share for its applications -- sort of what Microsoft did with Windows and Office -- is a reasonable one, Pedhazur says. "Corel could enjoy the same kind of effect, but that may be five years from now, if it happens at all," he says.
Meanwhile, Cowpland spent part of the call wondering why the market was valuing his stock at only a fraction of that of Red Hat. "We definitely continue to believe ... that Linux will be the operating system for the next decade, and that Corel has huge potential within that growth opportunity."
Time will tell when Corel's ship comes in.
Wrong! Rear Echelon Revelations: Making Mistakes When the Heat Is On
James J. Cramer
12/22/99 9:21 PM ET
Let's revisit that moment today when it looked like it was curtains for tech. Let's treat it as if it were a fire drill and critique what could and could not be done.
First, understand that there was confusion everywhere because declines happen with a level of swiftness that advances can only dream about. As soon as word spread that
may not have had such a hot quarter -- and I say "may" not just because I am long it, but because this stock had been trashed by negative publicity before and I am not succumbing to it this time -- people figured, hey,
, Lucent ... in other words, let's stay away.
Join the discussion on
The difficulty is that by the time that decision is made, we are strictly in group-think mode. In other words, when the consensus was reached that maybe we were due for a round of profit-taking, you can bet that your screen was already wrong.
Let's talk about my worst trade of the day, when I sold some
down about a half-dozen points. When I went in to sell it, the stock was unchanged, after having declined a couple from the opening. Goofus right then says, "Hey, get the last price on that sale." Gallant knows better; he knows that the stock will be so low by the time you finish selling your 5,000 shares that it's better not to do the trade.
Goofus (that's me) forces the trade and knocks Veritas down big. Gallant anticipates that forced buy and is ready to pounce the moment he sees it down 5. In other words, it was the time to buy, not sell.
But in the heat of battle, people make mistakes. The stock is up big from where I bought it. How do I know where it will stop? What's the problem with taking a profit? It was a good trade to begin with. The whole litany of rationalizations.
Ultimately, great traders know where the market is heading even when not-so-great traders are reacting to what they are seeing. In a "fast market," one that is moving so rapidly that the machines can't really update in time, you have to think ahead about where a dumb seller might knock down a stock you like. You have to be ready to pounce because you have to understand that, at the bottom, others want to buy with you. But most important, you have to like what you are going to buy because it may not be the lowest price of the day, or of the days.
In this great tape, however, it is. If you bought my Veritas, you made about 15 points in 10 minutes.
Now that's good trading.
During this incredible time of plenty in the stock market, we all have to remember that not everyone has it easy. I know this is a journal dedicated to helping you make money, and I don't want to turn it into my soapbox. But I am also not going to pass up the opportunity to remind you to dig in and help out the other guy. If you've got a big profit in something, take something off or give some of it away. Charity is an intensely private matter with me, and it is none of my business what you support or what you do with your money that you have worked so hard (or been lucky enough) to earn.
But if there were ever a year a reader of my column should be able to do the right thing, it is this one. So let's all do it together.
Help choose more Red Hots:
continuing to rage, we're planning to add more stocks to our
Red Hot Index. Visit our
message boards to post your comments on the candidates -- and make your own nominations.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Lucent. 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: Microsoft Adds a CFO, Qualcomm Subtracts a Business Division in Evening Action
12/22/99 8:00 PM ET
said it has tapped John Connors as its new CFO. Connors is replacing Greg Maffei, who stepped down from the role to accept the CEO position at Vancouver-based
. In post-market activity, Microsoft shares fell 1 11/16 to 115 7/8.
For more on the changing of the financial guard at Microsoft, take a look at the
story written this evening by
, announced that Japan-based
has agreed to purchase Qualcomm's consumer phone division for an undisclosed amount. Qualcomm said the sale would result in a onetime pretax charge of roughly $30 million in the first-quarter of fiscal 2000.
The deal calls for Kyocera to acquire Qualcomm's wireless phone businesses that use
Code Division Multiple Access
as well as its phone inventory, manufacturing equipment and customer orders. Kyocera also entered a five-year agreement to buy Qualcomm's CDMA chipsets and system software. The deal is set for completion by the end of February 2000.
In post-market trading, Qualcomm shares tumbled 5 1/16 to 481.
was the most active issue on
, cracking the one-million-share mark in the first hour of trading. Profit takers sank this stock this evening, after it gained 171% during the day session.
suffered a similar fate. It was down 1 13/32, after gaining 93% during the day.
received a huge pop in after-hours trading after the Nasdaq announced the company would replace
. Qwest is set to switch leagues and join the
New York Stock Exchange
on Jan. 3, trading under the symbol "Q". Gemstar rose 10 1/2 on the news.
In other post-close news (earnings estimates from
First Call/Thomson Financial
; earnings reported on a diluted basis unless otherwise specified):
Mergers, acquisitions and joint ventures
said it would issue a new tracking stock to follow the performance of its
division. Comdisco said it would file a preliminary proxy statement for the tracking stock with the
Securities and Exchange Commission
in January 2000.
The company also said that it expects to edge out the first-quarter, seven-analyst consensus estimate of 26 cents. Comdisco said it sees first-quarter earnings coming in at 35 cents a share, which does not include results from its
Prism Communications Services
Earnings/revenue reports and previews
posted first-quarter earnings of 50 cents a share, beating the five-analyst estimate of 49 cents and up from the year-ago 44 cents.
Fresh Del Monte Produce
said it sees fiscal 1999 earnings to fall below initial expectations. The five-analyst consensus estimate forecasts the company to post fiscal 1999 earnings of $1.32 a share.
posted first-quarter earnings of $1.19 a share, beating the 23-analyst estimate of 85 cents and the year-ago 19-cent loss.
said its expects third-quarter revenue to miss current expectations. The company blamed Y2K concerns for the decline in orders from its multinational clientele and the delay in setting a final U.S. federal budget for the disappointing results. N.E.T. said revenues for the current quarter would drop 15% to 20% below the second-quarter report of $64.8 million.
Offerings and stock actions
said it set a 5% share repurchasing program.
has asking shareholders to turn down
Wrigley Drive Partners
$25 a share tender offer to buy up to 1% of its common shares. Tri-Continental said Wrigley's offer is "significantly" lower than today's closing price of $28.0625 a share.
said it has received an order from
American International Group
International Lease Finance
for up to 100 737 aircraft. Boeing said that ILF made 50 firm orders, which are part of the 163 orders from unidentified customers, for its next generation 737 aircraft, totaling $2.26 billion. Boeing ILF had also placed an additional order for 50 more 737s. Rival Airbus Industries said yesterday that it finds Boeing's 163 unidentified customer orders implausible.
said it has been subpoenaed by the Mississippi Attorney General involving allegations that the company sold used automotive batteries as new. The company said the state's attorney has requested the company's battery sales records for Mississippi from 1990 through October 1999. Exide said it does not see the proceedings harming its financial situation. The company is currently facing similar lawsuits in Alabama and Florida.
refused to comment on the recent strong performance of its stock. Shares of Euroweb finished the day up 5 5/8, or 91.8%, to 11 3/4.
Nasdaq also said that
will replace of
. Qwest is set to begin trading on the
New York Stock Exchange
on Jan. 3.
family battle over the foodchain's future has apparently come to a close after both sides have agreed to consider a possible sale to increase shareholder value.
The feud had one side of family, led by Chairman Robert Weis fighting to hold the company together with the another, headed by the daughter-in-law of Weis' co-founder, arguing for a sale. The Chairman has given
Morgan Stanley Dean Witter
the go ahead to evaluate all options.
Bond Focus: Bonds' Attempt at Rally Is Unsuccessful
David A. Gaffen
12/22/99 4:24 PM ET
Another day, another unsuccessful attempt at a bond market rally.
Treasury securities, including the 30-year bond, gained early in the day. But, like yesterday, the gains didn't stick. Treasuries fell in the afternoon, a result of thin volume and general market malaise, although the
$15 billion two-year note auction turned out a bit better than expected.
Yes, activity is light, and there's nobody terribly interested in trading in the last week of the year, especially with Y2K approaching. But strategists believe the inability for Treasuries to post any gains at all after six of seven down days underscores the prevailing mood of the market, easily described as 'bleah.'
"One thing you've noticed, which is very negative, is that when
the market tries rallies, it fails," said William Sullivan, chief money-market economist at
Morgan Stanley Dean Witter
. "You saw that yesterday, and even though today's range is relatively narrow, they've tried to push prices up a bit, but the gains have not held."
At one point, the 30-year Treasury bond was up 12/32, but lately the benchmark Treasury was up just 2/32 to 95 19/32. The yield was unchanged at 6.46%.
The weakness was attributed to the market's current aversion to risk, but also because there's few investors who can justify buying Treasuries with the entire market scared of future Fed rate hikes. Yesterday, the market was strengthening before the
statement, which announced no change in rates but sounded hawkish enough to doom the bond market for another day.
"I think the whole specter of Fed tightening is hanging over the markets' head and it's going to continue to do so," said Maryann Hurley, vice president of bond trading at
in Seattle. "The market continues to trade with a very weak tone."
Note Sale Exceeds Expectations
In contrast to the overall weak tone, today's sale of two-year Treasury notes wasn't as poor as originally anticipated. The Treasury sold $15 billion of two-year notes today with a yield of 6.233%, the department announced.
The bid-to-cover ratio, which measures the total number of bids against what was sold, was 2.10 to 1. The average bid-to-cover ratio for the last 87 two-year note auctions was 2.48, Sullivan said, but pointed out that interest in two-year auctions has slowly declined in the last couple years as the Treasury has reduced the size of each auction, with the last six auctions producing an average bid-to-cover ratio of 2.16.
"This is not out of synch with more recent experiences," Sullivan said.
Interest was expected to be low because the auction settles (the day the money changes hands) on Dec. 31, and dealers were wary of conducting any type of operations on the last day before the date change.
Because the two-year notes sold between a yield of 6.125% and 6.249%, it was designated a reopening of the five-year note sale from Dec. 31, 1996, and has the same coupon of 6.125%.
Today's most significant economic release, the
final tinkering with the
report, didn't garner a response out of the market. The third-quarter GDP was revised upward to 5.7% from an earlier estimate of 5.5%. The
implicit price deflator
, the report's inflation indicator, was unchanged at a 1.1% rate.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
Joe Bousquin will be talking about the "Century Club" funds on "Your World with Neil Cavuto" on Fox News Channel Thursday, Dec. 23 at 5 p.m. EST.
Copyright 1999, TheStreet.com