TheStreet.com's MIDDAY UPDATE

March 23, 2000

http://www.thestreet.com

Market Data as of 3/23/00, 1:33 PM ET:

o Dow Jones Industrial Average: 11,029.27 up 162.57, 1.50%

o Nasdaq Composite Index: 4,952.09 up 87.34, 1.80%

o S&P 500: 1,519.62 up 18.98, 1.26%

o TSC Internet: 1,279.88 up 9.22, 0.73%

o Russell 2000: 576.76 up 5.57, 0.98%

o 30-Year Treasury: 105 07/32 up 1 09/32, yield 5.874%

In Today's Bulletin:

o Midday Musings: Indices Come Together in Sweet Harmony, Rising in Concert
o Herb on TheStreet: How Exchange Applications Fits Into MicroStrategy's Tangled Web

"TheStreet.com" on Fox News Channel

Don't miss this week's "TheStreet.com" as guest Graham Tanaka, president of Tanaka Capital Management, joins our panel of writers on the show."TheStreet.com" can be seen on Fox News Channel at 10 a.m. and 6 p.m. ESTSaturday and at 10 a.m. EST Sunday.

Also on TheStreet.com:

Wrong! Rear Echelon Revelations: Missing the Point of Micron's Move

Its move up yesterday was no conspiracy. It's just investors looking ahead to make money.

http://www.thestreet.com/comment/wrongrear/905648.html

Nothing but Net: Net Sector Opens Mixed, Continuing Uneasy Week

The sector's hallmark volatility will not abate as some traders take profits and others buy on the downdraft.

http://www.thestreet.com/markets/techupdate/905783.html

Options Buzz: A Big Buyer Chases Applied Materials Calls

One institution buys almost 10,000 call options, apparently playing for continued strength.

http://www.thestreet.com/stocks/optionsbuzz/905851.html

Dear Dagen: As a Defensive Move, Puts Beat Shorts

Buying put options is less risky than shorting.

http://www.thestreet.com/funds/deardagen/905848.html

Midday Musings: Indices Come Together in Sweet Harmony, Rising in Concert

By

Eileen Kinsella

Staff Reporter

3/23/00 1:26 PM ET For the first time in a long time, Old Economy and New Economy stocks are acting like friends instead of foes. And the peacemaker -- maybe mediator is more appropriate -- is none other than

Microsoft

(MSFT) - Get Report

.

News reports that the tech behemoth may be nearing a conclusion of its antitrust settlement talks with the government were helping to spread green across the major proxies. The stock was lately up 7 1/2 to 110 3/4. The

Dow Jones Industrial Average

component accounted for about 37 points of the blue-chip measure's gain of 148, or 1.4%, to 11,015.

The broader

S&P 500 index

was up 18, or 1.2%, to 1519, and the small-cap

Russell 2000

was 5, or 0.9%, to 577.

Technology stocks in general were getting a lift on the news, with the tech-laden

Nasdaq Composite Index

up 87, or 1.8%, to 4952. Other tech bellwethers were also showing strength, including

Oracle

(ORCL) - Get Report

up 2.5% and

Cisco

(CSCO) - Get Report

whose 2-for-1 stock split became effective today. Cisco was gaining 3.6%.

"Techs are getting a boost from Microsoft, Cisco's split buoyed the market, and there's follow-through from yesterday," said Jim Herrick, managing director of trading at

Robert W. Baird

in Milwaukee, summing up what is a fairly quiet day overall.

"There is not a lot going on. There's a lot of complacency," said David Baker, head of program trading at

Deutsche Bank

. "People are trying to digest what the heck went on," he said referring to the Nasdaq's hefty 253-point gain over the past two days and to the sharp run-up in biotechnology and semiconductor stocks in particular. The

American Stock Exchange Biotech Index

hopped 10% yesterday, while the

Philadelphia Stock Exchange Semiconductor Index

jumped 9.2%. (The Amex biotech index lately was down 0.8%, while its Nasdaq counterpart was off 2.7%.) All of the action comes on the heels of the latest 25-basis-point rate hike from the

Fed

.

Financial stocks got a lift from

Morgan Stanley Dean Witter's

(MWD)

robust first-quarter earnings report. The company said first-quarter profits rose 49%, driven by record results in its stocks businesses and strong investment banking fees. Earnings per share of $1.34 were well above the 12-analyst estimate of $1.06 and up from the year-ago 88 cents. Despite the boost to the rest of the financial sector, Morgan Stanley was lately weakening 2.5%.

J.P. Morgan

(JPM) - Get Report

was showing strength, lately up 3.2%, while

Chase Manhattan

(CMB)

was up 3.2%. The

American Stock Exchange Broker/Dealer Index

was up 2.9%.

FedEx

(FDX) - Get Report

also turned in a strong third-quarter earnings report despite soaring fuel prices. Shares were flying 2 15/16, or 7.9%, to 40 3/16. The

Dow Jones Transportation Average

was also in the green, up 1.8%.

Now that the latest Fed rate hike is out of the way, said Marshall Acuff, portfolio strategist at

Salomon Smith Barney

, "I think the market is mostly focused on near-term earnings results." He noted the reaction to

General Electric's

(GE) - Get Report

recent forecast of better-than-expected profits. "I think for a lot of people, stronger-than-expected growth is somewhat synonymous with high-tech. That has been the catalyst" for some of the very recent returns to that sector, said Acuff. "Growth continues to be the dominant thing as opposed to value."

Paper stocks were also racking up gains with the

Philadelphia Stock Exchange Forest & Paper Products Index

moving up 4.1%.

International Paper

(IP) - Get Report

popped 6.7% and

Georgia-Pacific

(GP)

rose 3.5% after the companies said they would form a B2B paper product marketplace.

The 10-year Treasury was up 28/32 to 103 15/32, its yield at 6.03%, while the 30-year Treasury was up 1 7/32 to 105 5/32, its yield at 5.88%.

Market Internals

Breadth was positive on both major exchanges on moderately heavy volume.

New York Stock Exchange:

1,633 advancers, 1,178 decliners, 619 million shares. 71 new 52-week highs, 21 new lows.

Nasdaq Stock Market:

2,094 advancers, 1,894 decliners, 1 billion shares. 93 new highs, 51 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately.

Herb on TheStreet: How Exchange Applications Fits Into MicroStrategy's Tangled Web

By

Herb Greenberg

Senior Columnist

3/23/00 6:30 AM ET

Thursday Thud:

With Wednesday's 23% rebound in its stock, the trouble at

MicroStrategy

(MSTR) - Get Report

is a distant memory and all is well with the world. Or is it? Earlier this week, MicroStrategy got nailed for recognizing revenue too quickly.

But go back and look at a deal MicroStrategy did with

Exchange Applications

(EXAP)

-- the one that was announced

after

the last quarter closed but was included as part of that quarter.

This was the $65 million "strategic alliance" between MicroStrategy and Exchange. It was mentioned by accounting sleuth Howard Schilit and by

Forbes

. (Unfortunately, it hadn't been on my radar.) I especially liked the Forbes story, because it highlighted several of these last-minute, back-scratching deals between MicroStrategy and several companies.

Perhaps the most telling line came from MicroStrategy CEO Michael Saylor, who was quoted as saying, "My job is to manage the business in such a way that nobody's disappointed. I have lots of levers at my disposal."

"Lots of levers at my disposal?"

Since when does "lots of levers" have anything to do with running a business? Relying on "lots of levers" can never be good because it suggests a company will do whatever it takes to get revenue. Doing whatever it takes -- deals for the sake of deals -- is never good --

Never, I tell ya!

Such a practice often leads to deals that shouldn't have been done.

Is that the case with the MicroStrategy/Exchange deal, which called for each company to sell software to the other? Hard to say, but this much is known: It was a last-minute deal (or so it would appear considering the timing of the announcement

after

the quarter ended). And had it not been done, neither company would've made analyst earnings estimates. Both, in fact, would've posted losses. (Nothing like those "levers" to save the day!)

As part of the deal, Exchange recorded $4.5 million in revenue from MicroStrategy. In turn, MicroStrategy, according to

Forbes

, recorded $14 million from Exchange (out of an initial payment of $30 million).

Where's the rest? Reliable rumblings are that MicroStrategy has said that an additional $11.5 million or so will be recognized in future quarters. That leaves $4.5 million -- the amount, coincidentally, MicroStrategy owes Exchange -- unaccounted for. Where did that $4.5 million go? Could it be that rather than take the cost of buying software from Exchange as a hit to expenses, MicroStrategy somehow understated the actual revenue from Exchange? (In other words, did it come straight off the top line rather than the bottom line?)

MicroStrategy declined comment. Exchange, meanwhile, insists it wouldn't have lost money if it hadn't received the $4.5 million order from MicroStrategy. An Exchange spokeswoman would only say what her company said at the time of the deal: That with the $4.5 million it now has "good revenue visibility" in the first quarter. What does that have to do with not losing money in the fourth quarter? She suggested I talk to analysts who follow Exchange for an answer. (Sorry, as I

mentioned Wednesday, I have a standing rule: I only accept answers from the company; analysts are not the company, though, I'm sure in some cases that could be debated.)

P.S.: Too much obfuscation and complication is always a red flag. (It often means more shoes to fall.)

Speaking of which: Lost in the swirl of MicroStrategy news late Tuesday -- amid a flurry of announced class-action lawsuit filings -- was a press release clarifying the company's original press release stating why it had to restate revenues.

At first, the company said the change was made ``to conform to the most recent statements of the Securities and Exchange Commission and the accounting profession regarding revenue recognition in the software industry, and to Statement of Position 97-2.''

At the same time, MicroStrategy said the change was ``the product of a recent detailed review of MicroStrategy's significant contracts and future business strategy and the related accounting under the revenue recognition rules, including the recently issued SEC Staff Accounting Bulletin 101.''

The revised statement: "The principal reason for the Company's decision to revise its 1998 and 1999 reported revenues and operating results was the need to do so under existing accounting principles articulated in Statement of Position 97-2. The Company's previously reported revenues and operating results were not revised principally to conform with Staff Accounting Bulletin 101 in advance of its required implementation by March 31, 2000."

In other words, the company's lawyers can't even get it straight.

Sometimes things get so complicated, they pull the wrong lever!

Stay tuned.

Short Positions:

Qualcomm alert:

One of this column's best sources, who

originally mentioned positive news at

Qualcomm

(QCOM) - Get Report

when it was still in the double digits, says he believes the company is in store for good news again. This time, his research shows that Qualcomm has accelerated chip orders originally scheduled for the second quarter, from the foundry it uses at

IBM

(IBM) - Get Report

, and put them into the first quarter. Seems biz in Korea and Japan is unexpectedly strong. But there's a fairly long (16-week) lead time. So, if the biz follows through, he says, don't expect to see the uptick until the second quarter. Qualcomm declined comment.

Chump City:

Don't I look like the chump for writing about

Scient

(SCNT)

Wednesday, up 5 5/16;

Lernout & Hauspie

(LHSP)

, up 2 1/16, and

Rambus

(RMBS) - Get Report

, up 83 51/64.

In the end, though, fundamentals do win out.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

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