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February 22, 2000

Market Data as of 2/22/00, 1:15 PM ET:

o Dow Jones Industrial Average: 10,188.50 down 31.02, -0.30%

o Nasdaq Composite Index: 4,323.66 down 88.08, -2.00%

o S&P 500: 1,336.96 down 9.13, -0.68%

o TSC Internet: 1,072.04 down 24.58, -2.24%

o Russell 2000: 535.98 down 9.70, -1.78%

o 30-Year Treasury: 102 05/32 up 29/32, yield 6.081%

In Today's Bulletin:

o Midday Musings: Harsh Selloff in Nasdaq Continues; Dow Weak as Well
o Money Talks: Cisco Pays Top Dollar for Talent

Also on

Tech Savvy: Microsoft and the DOJ, Continued

The Invisible Mouth: Get a Haircut, Hippie

Tracing Greenspan's current thinking back to an earlier age.

Telecom: As Wireless Consolidation Shakes Out, VoiceStream, Bay Area Bear Watching

Two plum properties appeal to distinctly different crowds of potential acquirers.

Telecom: The Anglo File: BT May Spin Off Assets to Fend Off Hostile Bid

International predators gather as weakening stock prices reveal BT's problems are more than skin-deep.

Midday Musings: Harsh Selloff in Nasdaq Continues; Dow Weak as Well


Thomas Lepri

Staff Reporter

2/22/00 1:14 PM ET

A broad range of stocks were coming under pressure near midsession after a fleeting early rally transformed itself into a resumption of

Friday's weakness.


Nasdaq Composite Index

was down 84, or 1.9%, to 4327. Selling in components such as









was overshadowing a sparkling performance by

Nextel Communications


, which was up 5.7% after posting a narrower-than-expected loss and setting a 2-for-1 stock split

The broader big-cap market was faring better, with the

S&P 500

off 9 to 1338. The

Dow Jones Industrial Average

, meanwhile, was down 30 to 10,189, well up from its morning low of 10,103.

General Electric


was the Dow's biggest gainer, rebounding 2.6%.

Unfortunately for longs, the considerable selling stocks have seen lately has failed to place the market in clear oversold territory. Technicians trying to identify support levels were less than optimistic.

"Remember how we had the 10K watch on the way up?" asked Richard Dickson, technical analyst at

Scott & Stringfellow

in Richmond, Va. "We've got it on the way down now. The S&Ps have done a whole lot better -- the next support there, which is really minor support, is at 1275. And the Nasdaq? It's still up there. We can't talk about meaningful support levels there."

It's not that the market is clearly too complacent to put in a firm bottom. The

Chicago Board Options Exchange Market Volatility Index

, used to gauge fear in the options market, was lately sitting at a top-range 29.79. To a contrarian, a VIX that high often signals that investors are scared enough to suggest a bottom is imminent. But the equity put/call ratio, another important contrarian indicator, was telling quite another story, lately reading a relatively optimistic 0.39.

"That's really kind of surprising," Dickson said of the low put/call ratio. "You'd expect to see that much higher. It has to do with the fact that we haven't gone straight down. It's been a more volatile market, which on a short-term basis creates these overbought/oversold extremes."

Despite the confusion, the tone on trading desks wasn't panicky. "It feels like your basic correction to me," said Jim Benning, a trader at

BT Brokerage

. "The Dow's down about

13% from its high. The Nasdaq's not down that much, but it's kind of sloppy."

"I think we'll have this kind of market until the Fed is done doing what it's been doing. The question is when that is."

The latest


poll shows about three-quarters of primary dealers of government debt expecting the Federal Reserve to hike rates by 25 basis points at each of its next two meetings. But the first day of Fed boss

Alan Greenspan's


testimony produced no hint of any light at the end of the tightening tunnel.

Greenspan will conclude his testimony tomorrow before the

Senate Banking Committee


The bond market was moving higher, with the benchmark 10-year Treasury up 26/32 to 100 28/32, putting its yield at 6.38%. The 30-year Treasury, meanwhile, was 29/32 higher to 102 7/32 and yielding 6.09%. (For more on the fixed-income market, see today's

Bond Focus.)

The strength in bonds wasn't spurring any broad strength in the financial sector, despite the intense beating many banks and brokerages have taken recently. The

American Stock Exchange Broker/Dealer Index

was down 1.1%, while the

Philadelphia Stock Exchange/KBW Bank Index

was up 0.3%.

"I'm watching the financials more than anything else," said Dickson. "If we're going to bottom, we'll need to see relative strength pick up out of the bank stocks."

Biotech stocks continued to consolidate. The

American Stock Exchange Biotechnology Index

was down 3.5%.

Paper stocks, which have been whacked pretty hard thus far in 2000, were getting bids in the wake of

Stora Enso's

$4 billion acquisition of

Consolidated Papers


. The acquisition values Wisconsin Rapids, Wis.-based Consolidated Papers at $44 a share. Consolidated Papers was bouncing 9 3/16, or 35.3%, to 35 3/16.


Philadelphia Stock Exchange Forest & Paper Product Index

was up 1.1%.

The smallish-cap

Russell 2000

was getting hammered down 10, or 1.8%, to 536.

Net stocks were also under pressure, with the Internet Sector

index off 26, or 2.3%, to 1072.

Market Internals

Breadth was awful on moderate volume.

New York Stock Exchange:

1,073 advancers, 1,809 decliners, 569 million shares. 28 new 52-week highs, 157 new lows.

Nasdaq Stock Market:

1,551 advancers, 2,552 decliners, 1.1 billion shares. 176 new highs, 121 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately. Money Talks: Cisco Pays Top Dollar for Talent


Adam Lashinsky

Silicon Valley Columnist

2/22/00 7:00 AM ET

How Much Is the Engineer in the Window?

A rule of thumb in Silicon Valley is that a big company like



will pay about $5 million per engineer when acquiring a development-stage company. That's the kind of company that typically doesn't have revenue or products but that presumably does have killer technology and brainy developers focused on a fast-growing market.


exploded the $5-million rule when it announced in August that it would buy


for $6.9 billion, or about $24 million per employee. The per-engineer figure, had Cisco disclosed it, would have been even higher. Cerent had revenue, of course, and it likely was worth whatever Cisco paid considering the dramatic move up since then in shares of other companies in the optical-networking segment of the communications-gear industry.

Fortunately for Cisco, the Cerent acquisition also proved a high-water mark, as the accompanying chart shows. That deal was unusual because Cerent was about to go public and Cisco was forced to pay a premium of about what it reckoned Wall Street was poised to pay. Since the Cerent deal, Cisco has paid an average of $3.5 million per employee for the 11 acquisitions in which it has disclosed price and worker information.

Helping the average last week was the purchase of

Growth Networks

, a 53-employee maker of "Internet switching fabrics," a new type of silicon used for telecommunications equipment. At $355 million, Cisco is paying $6.7 million per Growth Networks employee.

Mike Volpi, Cisco's top internal dealmaker, confirms that his company does indeed make a per-engineer calculation when acquiring private companies. "The metric has been rising with the increased liquidity in the market," he says in an email, without elaborating specifically on the value of an engineer.

FreeMarkets and the Reactive Press Release

An item here a month ago suggested that shares of



, the Pittsburgh-based online industrial auction site, had lost its momentum at around 171. "Hah!" answered FreeMarkets an hour and 15 minutes after the column was posted on

. The company announced that its customer base nearly had doubled. Its shares shot up almost $70, or 41%, in a day.

It turns out that FreeMarkets has a knack for the rapid response worthy of the


campaign's famous war room in 1992. The problem is that sometimes the device works, and sometimes it doesn't.

To wit, on Jan. 4, FreeMarkets disclosed the "expected cancellation" of its business relationship with

General Motors


. That came a day after a Wall Street analyst said competitor

Commerce One


had wooed GM as a customer. On Jan. 14, FreeMarkets shareholder and No. 1 customer

United Technologies


announced that it was creating an online exchange called

, using software from

I2 Technologies


. The release made no mention of FreeMarkets, which put out its own release about six hours later, quoting United Technologies reiterating that FreeMarkets remains "an integral part of its strategy." That release didn't say why UT isn't using FreeMarkets for its online marketplace. Finally, for no apparent reason, FreeMarkets said Friday that its clients had reached the apparently noteworthy level of $575 million worth of products that have been auctioned on its sites. Might that news release have had something to do with the Feb. 17 announcement by Commerce One that it will be the brains behind a new Internet portal operated by





"These releases are made during the normal course of business," says a FreeMarkets spokeswoman.

No matter, the stock has drooped along with the rest of the market. It closed Friday at 176 5/8.

Here's the Silver Lining

Boris Feldman, a litigator with

Wilson Sonsini Goodrich & Rosati

in Palo Alto, Calif., makes his living defending companies sued by plaintiff attorneys. They're the bunch who scour the wires for stocks that have plunged and then file suit, alleging that the companies failed to warn investors of potential problems.

Feldman argues that such "missed-quarter suits" will be relatively few and far between for Internet-oriented companies because of their standard risk disclosures. New-age technology companies basically say in their filings with the

Securities and Exchange Commission

that they can promise almost nothing and that nearly everything about their business is an unknown.

To choose an example of risks highlighted in a very successful IPO, hardware maker

VA Linux Systems


disclosed in December that it expects to generate losses "for the foreseeable future," that it has a limited operating history, that investors "should not rely on the results of any past periods as an indication of our future net revenues or results of operations," and other scary warnings.

In other words, new technology companies are telling investors so blatantly that they can't predict the future that it will be more difficult to sue them for the future not turning out well.

Don't start raising that fund to keep Feldman clothed and fed, however. He predicts that the bulk of shareholder-rights suits in the future will turn on instances of alleged accounting abuses, such as the suits involving




McKesson HBOC


. And there's no shortage of companies willing to commit accounting fraud, especially when their stocks are in free fall.

Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

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