May 3, 2000

Market Data as of 5/3/00, 1:30 PM ET:

o Dow Jones Industrial Average: 10,500.22 down 230.90, -2.15%

o Nasdaq Composite Index: 3,659.85 down 125.60, -3.32%

o S&P 500: 1,414.01 down 32.28, -2.23%

o TSC Internet: 856.72 down 14.34, -1.65%

o Russell 2000: 491.88 down 13.47, -2.67%

o 30-Year Treasury: 102 20/32 down 18/32, yield 6.055%

In Today's Bulletin:

o Tech Savvy: Sussing Out Scalability, Real and Claimed: Part 1

Also on

Wrong! Dispatches from the Front: Everyone's Entitled to an Opinion

Investing is about finding a comfort zone. Growing Concerns Over 'Going Concern' Auditor Statements

After Drkoop's warning, the accounting red flag is once more recognized.

Brokerages/Wall Street: Tech Buybacks Fail to Take Hold Despite April Swoon

Most buyback announcements in recent weeks have come from beaten-down Old Economy companies.

Dear Dagen: A Beginner's Guide to Analyst Ratings

They can be useful if correctly interpreted. Here's how to read the tea leaves.

Tech Savvy: Sussing Out Scalability, Real and Claimed: Part 1 Rate Jitters, Company Disappointments Slapping Stocks Lower By Eileen KinsellaNow that the sport of watching earnings is mostly done for the season, investors have moved on to the next game, guessing what the

Fed will do in two weeks. Still, the market takes time out every now and then to drop a stiff penalty on some company that falls short of expectations, or has a less-than-stellar outlook.

Most stocks went along for the ride south as punishments were meted out to business management software company



and retailing giant


(WMT) - Get Report

. Novell was shedding 38.1% after

yesterday's postclose warning that second-quarter income would be about half of Wall Street's expectations.

Wal-Mart's woes were the result of

Goldman Sachs'

bearish comments on the retailing sector. Fellow sellers were feeling the pain with the

S&P Retail Index

lately down 5.7%. Goldman tossed Wal-Mart and


(TGT) - Get Report

, among many others, off its recommended list and slapped market performer ratings on the stocks. Target was lately tumbling 7.1%.

That bad news, combined with an unhealthy dose of Fed fear, made for a second down day in the broader market. "They don't appear to like stocks today," said Doug Myers, vice president of equity trading at

IJL Wachovia

in Atlanta. "Some of it is interest-rate fears. Some of it is another round of people who have some profit in their stock. The market is stair-stepping down, so they try to lock in their profits."


Dow Jones Industrial Average

spent the morning in the red, lately off 208, or 1.9%, to 10,524, while the

Nasdaq Composite Index

surrendered after a brief attempt to move higher and lately was down 110, or 2.9%, to 3676. The

S&P 500

was down 28, or 2%, to 1418, while the small-cap

Russell 2000

was off 12, or 2.4%, to 493. Internet stocks were heading modestly lower after a short stop in the green with Internet Sector

index down 2, or 0.2%, to 869.

"Everyone keeps eyeballing that

Federal Open Market Committee meeting" coming up May 16, said Adam Wagner, president of

Wagner Hermann & Herbst

in Houston, adding that there is enough time before the meeting that we may even see a rally. Right now the market has gone from pricing in a 25-basis-point rate hike to something approaching 50 basis points, said Wagner. "What that would mean is that we'd probably get a knee-jerk reaction either way," he said. If the move is 50 and the market heads down, he added, a lot of the duration of the drop will depend on what kind of guidance the Fed issues. A quarter-point hike could mean a relief rally.

Still, Wagner said he feels there has been enough air taken out of the market in recent weeks, that Fed Chairman

Alan Greenspan has less of a reason to think a 50-basis-point lift is needed. Though numbers for April have not been released yet, Wagner guesses that margin debt, in which Greenspan is known to be keenly interested, has waned as a result of all the investors who had to meet margin calls last month when the market took a nosedive. In addition, "the stocks that were the most over-exposed corrected the most," he said.

For now, today's action is "not a storm, it's a stream," said Myers. "You have some people with long-term gains and short-term losses and it's making them skittish."

Myers noted that health-care stocks were also hurting after

Manor Care

(HCR) - Get Report

fell well short of expectations with its first-quarter earnings report. The company said rising employment costs and patient liability claims had cut into its profits. Manor Care lately was down 35.6%. The

S&P Health Care Index

was off 0.6%.

Financials had been inching higher earlier on but lately dipped into the red.

J.P. Morgan

(JPM) - Get Report



(C) - Get Report


Chase Manhattan


were all down. The

Philadelphia Stock Exchange/KBW Bank Index

was down 0.6% while the

American Stock Exchange Broker/Dealer Index

was off 1.3%

In the bond market the 10-year Treasury was down 6/32 to 101 6/32, its yield rising to 6.33%.

Market Internals

Breadth was negative, particularly on the Big Board, on moderate volume.

New York Stock Exchange:

808 advancers, 1,942 decliners, 539 million shares. 33 new 52-week highs, 44 new lows.

Nasdaq Stock Market:

1,066 advancers, 2,686 decliners, 794 million shares. 8 new highs, 61 new lows.

For a look at stocks in the midsession news, see Midday Stocks to Watch, published separately.


Jim Seymour

Special to

5/3/00 9:58 AM ET

Much of the lingo in our business, as in many businesses, falls somewhere between tough to understand and utterly impenetrable. Like Lewis Carroll's

Humpty Dumpty


Through the Looking Glass

-- "'When I use a word,' Humpty Dumpty said in rather a scornful tone, 'it means just what I choose it to mean -- neither more nor less.'" -- we tend to use language to mean what


want it to mean, not what most others think it means.

A constant thread in my mail from

subscribers asks what one or another of these curious terms really means. Because I work, in effect, at the intersection of technology and investing, I get a double dose: odd terms from both areas.

A steady stream of those inquiries involves the word


. Nearly everyone knows the meaning of scalability in the most common, real-world terms; but it has special, and different, meanings in the tech world and in the business world. So let's tackle both.

I call these variations

engineering scalability


business-model scalability

. Both are important.

Engineering scalability is often used in computer hardware and software design and specs.

Sun Microsystems

(SUNW) - Get Report

, for example, often uses the term scalability to describe the expandability of its high-priced, high-power servers. The idea is that once you buy one of these machines, the capacity of the base machine -- the number of concurrent users it can handle -- can be increased by adding additional processors, additional memory, and additional internal or external disk drives.

Sooner or later, yes, you do have to buy a second Sun server --and then a 10th and a 50th and a 100th, if you're so lucky that your business grows that much -- but the underlying promise is that you'll get relatively more mileage out of that first machine ... and that when you do buy more, all will work together smoothly.

Somewhat oversimplified, that's the computer-hardware definition for scalability.

Software scalability is similar. Network operating systems, especially, should be able to handle more and more simultaneous users, without hitting the wall, without performance slowing to a crawl. To use Sun as an example again, its Solaris flavor of Unix has a great reputation as a highly scalable operating system: You can keep piling on more users.

Again, performance eventually does drop, and you have to add more hardware under the operating system. Then, Solaris promises, all your connected, load-sharing servers, running under Solaris, will work smoothly together, as you pile on more and more servers.

One of the big knocks on


(MSFT) - Get Report

Windows NT had been that it wasn't very scalable. No matter the power and quantity of the underlying hardware, it hit the wall too soon as you added users. Unix in general, Solaris in particular, and most versions of Linux all were perceived as more scalable. Bad news for Microsoft.

So when Microsoft rolled out Windows 2000, the successor to Windows NT, this spring, it made sure it was ready to deal with questions about scalability. It could turn to extensive third-party tests to show --


-- that when running on very high-end Compaq servers, Windows 2000's most advanced versions were, in fact,


scalable ... even more scalable --

surprise again!

-- than the competition's.

So scalability turns out to be a big issue in the computer world. Claims and proofs of scalability -- this kind of

engineering scalability

-- are key to big sales and to building the ongoing reputation of a company and its products.

Over here on the investment side of the street, what I call "business-model scalability," has a completely different, though clearly related, meaning. In the business world, and especially in Web businesses, managers speak of the scalability of their revenue models, by which they mean that after reaching a certain, predictable critical mass in terms of capital investment and number of users signed up, they can then serve many more customers with almost no additional costs.

Say you're running an information Web site. Once you've built your technology infrastructure, built your editorial staff, have your marketing programs in place, and have hit some critical mass of subscribers, then what's the incremental cost of adding another customer? A thousand more customers? Ten thousand more customers?

Essentially, if not quite, zero.

In other words, you start using the power of capitalism -- using money to make more money -- to kick into what people like to call the hockey-stick-shaped curve not only in revenue, but also profits.

Because labor represents, for most businesses, about 70% of their cost structures, an approach that allows additional growth past some break-even point without adding additional staff -- or by adding fewer staff, per X-thousand users, than originally required -- can be spectacularly profitable.

Later today: Did the Web give new meaning to scalability, or is it some New Economy smoke and mirrors?

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

Copyright 2000,