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midday08-11-99's MIDDAY UPDATE

August 11, 1999


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Market Data as of 8/11/99, 1:09 PM ET:

o Dow Jones Industrial Average: 10,708.65 up 53.50, 0.50%

o Nasdaq Composite Index: 2,518.39 up 28.28, 1.14%

o S&P 500: 1,289.82 up 8.39, 0.65%

o TSC Internet: 485.17 down 3.23, -0.66%

o Russell 2000: 423.96 up 1.14, 0.27%

o 30-Year Treasury: 86 11/32 down 9/32, yield 6.264%

In Today's Bulletin:

o Midday Musings: Stocks Maintain Gains but Stutter-Step a Bit
o Will Dutch Auctions Go the Way of the Dodo?

Also on

Wrong! Dispatches from the Front: Saying Never at Reynolds

Reacting to Alcoa's latest offer to buy Reynolds Metals, Cramer reflects on the collective plight of commodities companies in the '90s.

Retail: Gap Sags as Fashion Increasingly Influences American Tastes

In a tough month for retailers, the Gap is reeling as its focus on basics shuts it out of the latest trends.

Internet: How Evolving Features Enable AOL to Spin a Stickier Web Site

The online service provider seeks to bring users into its fold and keep them there.

Technician's Take: Charted Territory: Readers Chime In With Stressbusting Tips

How do people combat the angst of trading? Everything from pinball to reading



Market Features: Fears of a Big Fed Hike Offer Trading Opportunity

The market is going overboard worrying about a 50-basis-point rate hike at the Aug. 24 Fed meeting, and that could give traders a bounce to play with.

Nothing but Net: Red-Letter Day: Red Hat IPO Is Priced Top-Range at $14

Plus, get ready to stock up on AOL shares, you widows and orphans.

Dear Dagen: Dear Dagen: In Defense of Brokers

Also from this week's mailbag, Ralph Wanger explains the closing of two of his Acorn funds.

Midday Musings: Stocks Maintain Gains but Stutter-Step a Bit


Eileen Kinsella

Staff Reporter

8/11/99 1:19 PM ET

The market's brave attempt at a jump was a welcome move on Wall Street this morning. But by midday, major indices were giving up some of the gains and the rally looked more like baby steps than anything with real legs.

It ... just ... might ... stick

was the optimist mantra this morning and many thought a one-day move higher was a distinct possibility. But after climbing more than 80 points to 10,734.61 in early trading, the

Dow Jones Industrial Average

lost its footing and fell back amid unsubstantiated rumors that



Alan Greenspan

might resign. Lately it had regained some of its lost ground and was up 54 to 10,709.

Other major indices, including the

Nasdaq Composite Index

, the

S&P 500

and the

Russell 2000

, were also keeping a grip on their gains. The Nasdaq was up 28 to 2518, the S&P 500 was up 8 to 1290 and the Russell 2000 was up 1 to 424.

"It's a collective sigh of relief, " said Bill Schneider, head of equity block trading at

Warburg Dillon Read

. "Bonds have stabilized for the time being, the Internet stocks came back yesterday and the Nasdaq feels firmer. Emotionally, the market got oversold and even a little stability

is taking some of the pressure off" selling, said Schneider.

Technology stocks were looking healthy in late morning trading. Contributing to the upswing were



, up 4.2%,

Sun Microsystems


, up 1.9%, and



, which was up 1.2% after the bellwether reported slightly better-than-expected earnings last night and calmed some frazzled tech-stock nerves.

Other Internet stocks were in more choppy water however, with Internet Sector

index down 3 to 485, struggling with the weight of



, down 1.2%, and


, off 2.3%, among other Net laggards.

Of course, all the wobbling is starting to look familiar to market watchers, who for the past few trading days have watched stocks repeat the same pattern: coming out swinging early only to get knocked back by the one-two punch of strong economic data and the overhanging implications of what now seems like an inevitable interest-rate hike Aug. 24, when the

Federal Open Market Committee

meets again.

"The bond market has discounted a 25-basis-point hike," said Schneider. "The equity market is still wrestling with where it wants to be. The stock market has to catch up to the bond market and I'm not sure its quite there yet."

As for the rest of the day, Schneider said the market remains fragile. I'm "not sure that this is a terribly sustainable rally," he said. "It's August, a big order or a shift in sentiment could sway" the market.

On the

New York Stock Exchange

1,546 advancers were leading 1,296 decliners on 445 million shares, and on the

Nasdaq Stock Market

1,854 winners were beating 1,714 losers on 503 million shares. New 52-week lows were beating new highs 167 to 26 on the Big Board and 78 to 34 on the Nasdaq, however.

The benchmark 30-year Treasury bond was down 8/32 to 86 10/32, its yield rising to 6.27%. (For more on the fixed-income market, see today's early

Bond Focus.)

Wednesday's Midday Watchlist

By Thomas Lepri and Tara Murphy
Staff Reporters


Earnings estimates from First Call. Earnings reported on a diluted basis unless otherwise specified.


The equities markets are feeling the impact of today's big dealing in the aluminum industry.

Reynolds Metals


was surging 9, or 16.1%, to 64 7/8 after Dow component



made an unsolicited offer to buy it for about $4.2 billion.

Alcoa's bid responds to the news that Canadian aluminum giant



is buying France's



and Switzerland's


for about $9.2 billion in stock. Alcoa, which was lately up 1 1/16 to 67 1/2, is offering $65 a share for half of Reynolds' outstanding shares, and 0.9784 Alcoa shares for each of the remaining half.



was lately up 13/16 to 34 7/16, while ADRs of Pechiney were up 15/16 to 29 3/16.

Mergers, acquisitions and joint ventures

Bank One


was moving up 15/16 to 52 1/2 after it said it is expanding its

Technology One Alliance







-- under which those companies provide Bank One with networking and computing support services -- to include locations of the former

First Chicago NBD

, which Bank One bought last year. Bank One said the new contracts with AT&T and IBM are worth $465 million and $168 million, respectively. AT&T was unchanged at 48 15/16 at midday, while IBM was up 1 9/16 to 120 7/8.

Sun Microsystems was up 1 5/16 to 69 5/16 after signing a long-term deal with data storage maker

Storage Technology


allowing the companies to resell each other's storage systems. Storage Technologies was rising 1 1/8, or 5.9%, to 20 3/16 on news of the deal, whose financial terms weren't disclosed.

Nortel Networks


was up 1 5/16, or 1.6%, to 83 1/2 after it said that

U S West


-- which

Qwest Communications


is buying -- has chosen it to help the regional Bell improve its network capacity by providing it high-speed data and telephony services. U S West was down 3/16 to 52 7/8.

Earnings/revenue reports and previews

Cisco is riding high on yesterday's earnings report, lately up 2 7/16, or 4.2%, to 61 3/16. The company posted fourth-quarter earnings of 21 cents a share, excluding extraordinary items. That's a penny above the 30-analyst First Call estimate and up from the year-ago 16 cents. Cisco also received a boot up from

Wachovia Securities

tech analyst George Hunt, who upped the stock to strong buy from long-term buy.

Delphi Automotive


is riding smoothly after CEO J.T. Battenberg said he feels comfortable with third quarter and full-year earning-per-share estimates of 23 cents and $1.88, respectively. Delphi, which debuted at 17 back in February, was up 5/16 to 17 7/8.

Federated Department Stores


was off 1/8 to 48 7/8 after it posted second-quarter earnings of 61 cents a share, 4 cents ahead of the 17-analyst estimate and up from last year's 47 cents.

FPIC Insurance


said it has no idea why its stock was lately plunging 11, or 29.6%, to 26 3/8 after the company last night reported what would appear to be solid second-quarter earnings. The company said it earned 71 cents a share, a penny ahead of the three-analyst prediction and up from the previous year's 52 cents. The weakest portion of the report was the company's admission that claims in a health plan offered to

Florida Dental Association

members came in $1 million above expectations. FPIC also set plans yesterday to buy two small providers of administration services for about $1 million.

Medical device manufacturer



was bouncing 3/4 to 32 3/4 after reporting fourth-quarter earnings from continuing operations of 73 cents a share, surpassing the five-analyst prediction and beating the 59 cents it made last year.

Lighting products maker



was surging 2 3/4, or 12.5%, to 24 3/4 after it posted second-quarter earnings of 39 cents a share, a penny above the seven-analyst call and up from last year's 26 cents.

Offerings and stock actions



was up 1/16 to 15 1/16 in its trading debut, after

Salomon Smith Barney

priced the 31 million-share IPO at $15 a share, below the anticipated price range of $16 to $18.

Red Hat

(RHAT:Nasdaq) is proving to be red hot in its first day of trading. The stock was lately up 32, or 230%, to 46 after pricing top- range at $14.

Goldman Sachs

, the lead underwriter for the six million share IPO, raised the pricing range to $12 to 14 from $10 to 12, bucking recent Internet-stock pessimism.

Analyst actions


bang to



estimates hasn't made much of a dent. The brokerage cut estimates for the company's 1999 earnings to $2.25 a share from $2.61, citing the industry's "July power crunch." Cinergy shares were trading up 5/16 to 28 1/4.

Warburg Dillon Reed




to buy from strong buy. Shares of Crossman were off 3/8 to 27.


raised its price target on



to 95 from 80. Shares of Intel shot up 2 15/16 to 74 5/8.



was up 3/8 to 34 1/8 after

Lehman Brothers

started coverage on the retail store, tagging it with a market outperform rating.

Lehman Brothers upgraded

SmithKline Beecham


to outperform from neutral. The stock was up 5/16 to 58 11/16.

Merrill Lynch


Texas Instruments


its Focus One stock of the week. Shares of Texas Instruments were up 4 3/8 to 142 7/8 on the news.

U.S. Home


was off 1/4 to 33 1/16 after Warburg Dillon Reed downgraded the stock from strong buy to buy.


China Airlines gave Boeing a liftoff today when it placed the largest aircraft order in the history of Taiwan, valued at $3.8 billion. The airline said its order includes 13 Boeing 747-400F cargo jets, with options for 11 more cargo and passenger jets.

General Electric



GE Aircraft

will supply the jets with its CF6-80C2 engines. Boeing was lately up 3/16 to 46 1/16.

Oak Industries


was getting hammered down 6 3/4, or 16.5%, to 34 on no particular news whatsoever. Trading was halted on the stock this morning, and has since resumed, but the reason for its sharp decline is yet unclear.

MCI WorldCom


was sinking 1 1/16 to 76 1/16 amid the recent service disruptions plaguing its high-speed data network.

Southwest Airlines


was falling 3/8 to 16 1/8 after it said Herb Kelleher, its chairman, president and CEO, will begin radiation treatment today for prostate cancer. Kelleher will receive brief treatments each weekday for about eight weeks, the company said. Will Dutch Auctions Go the Way of the Dodo?


Adam Lashinsky

Silicon Valley Columnist

8/11/99 7:00 AM ET

The ongoing demise of the snake-oil era of initial public offerings also bodes ill for one of our time's most admirable experiments, the IPO by Dutch auction being pushed by Net-only investment bank

W.R. Hambrecht


San Francisco-based Hambrecht's so-called


process is

well known by now. Since February, Hambrecht has made available a system whereby the fledgling investment bank sells stock to investors at the highest price at which it could unload all the desired shares. The advantages of such a system are obvious: Gone are first-day run-ups caused by institutional shareholders "flipping" to retail investors, high commissions to the underwriters (7% for established banks vs. 3-5% for Hambrecht) and dishonest research that pumps up client companies.

Best of all, companies offering their stocks to investors no longer would be "leaving money on the table" by offering shares at a price obviously below what investors had been willing to pay.

Then came the IPO market's August angst, potentially dealing a rough blow to the money-on-the-table theory. If silly IPOs end, so will silly run-ups. In other words, smart companies don't worry too much about riches "lost" in an IPO that offers only a sliver of outstanding stock to the public. If the stock holds, happy institutional investors -- the ones that will be there again and again -- will buy more in follow-on offerings.

But it seems that neither the go-go times nor their demise have treated W.R. Hambrecht, founded by

Hambrecht & Quist


co-founder William Hambrecht, all that well. The company has completed just two IPOs,

Ravenswood Winery




, and has only one more,

, in registration.

By comparison,

Thomas Weisel Partners

began operations just a month before Hambrecht and focuses on similar industries, but it has been a co-manager of 21 IPOs and has another 20 in registration. Weisel founder Thomas Weisel -- who, like Bill Hambrecht, apparently likes to be reminded who the boss is when he walks in in the morning -- was a founder of

Montgomery Securities

. His only "innovation" in founding the new firm, however, was to revert to a partnership ownership structure after experiencing corporate life under


, now

Bank of America



What's more, the efficient pricing of the auction process won't save a company when markets sour. Ravenswood Winery trades -- on tiny average daily volume of 16,000 shares -- for exactly its April IPO price of 10 1/2., also offered at 10 1/2 in June, closed Tuesday at 6 7/8. Sponsorship by a traditional bank, of course, does not guarantee that a company will stay over its IPO price.


, underwritten by

Goldman Sachs

, H&Q and Weisel, closed Tuesday at 15 11/16, down 17% from its May IPO and off about 77% from its first-day high.

Bill Hambrecht wasn't available Tuesday to discuss the firm's future. But he's clearly feeling stung by critical treatments in the media. A spokesman sent around a letter earlier in the week hoping to dispel "confusion" over the OpenIPO process.

Make no mistake, Hambrecht's venture is progressive. It attempts to eliminate some of the greed from a greedy and often disingenuous process. For example, its research analysts don't supply recommendations that no one believes anyway. Instead, they lay out the facts in a highly readable fashion and let investors make their own decisions, as analyst Steve Jang has done in a lucid and totally free

report about

Quips a Hambrecht spokesman: "The idea is to do away with the stellar analyst and just provide stellar data."

But at the end of the day, it appears neither senior executives nor investors with staying power are willing to risk their companies or their investments on a Dutch auction with a revolutionary investment bank that's delivering only for half a handful of niche players.

"Investors want us to use judgment," says Scott Ryles, head of technology investment banking for

Merrill Lynch

in Palo Alto, Calif.

More to the point is the start-up CEO who recently expressed sympathy for Hambrecht's method. But when asked if his company would go with Hambrecht or a major investment bank, given the choice, he replied,"We'll stick with the sure thing."

Random Musings on AMD

With all the

hoopla over

Advanced Micro Devices'


new Athlon microprocessor, it's time for a brief reality check. To review, AMD is emulating



strategy in every way by making top-quality PC-oriented chips and investing in companies that will promote their use. But note that AMD is refocusing on the microprocessor just as Intel increasingly is paying attention to things like communications chips, Web hosting and other tangents.

On whose strategic vision do you want to bet, AMD's management or Intel's? Scary.

Just Because Herb Is on Vacation Doesn't Mean ...

The Herbivore (my pick for his preferred nickname) is incommunicado this week. But what a joy it is to update my


readers on the trials and tribulations of

California Micro Devices


, a saga that fits into a category I like to call a "Herb Special." ("Senpai" is the Japanese word for a respected senior, one who shows the way to a younger colleague. And I ain't kidding.)

As Herb

reminded us recently, the Cal Micro story began as a

San Francisco Chronicle

column in the mid-1990s that questioned whether rising receivables at the Milpitas, Calif., chip company signaled trouble ahead. Big trouble, it turned out.


Securities and Exchange Commission

brought suit against eight Cal Micro executives, six of whom have settled. One who hasn't is former CEO Chan Desaigoudar, who is appealing a jail term.

Tuesday the SEC took another action that should strike terror in the hearts of accountants, lawyers and executives who look the other way when the books are being cooked. In an administrative proceeding, it charged two former

Coopers & Lybrand

auditors with "improper professional conduct" while preparing Cal Micro's books. The SEC said Michael Marrie and Brian Berry, while performing audits for fiscal 1994, ignored "unmistakable red flags" that Cal Micro was obscuring its actual performance. The SEC will conduct a further hearing to determine what penalty, if any, to pursue against the two. Penalties could include being suspended or barred from signing audits for public companies.

When it comes to financial fraud, the wheels of justice turn slowly. But it's good to see that regulators -- once clued in to shenanigans -- will pursue the alleged cheaters.

Neither former auditor returned phone calls placed to their respective homes in Arizona.

Adam Lashinsky's column appears Mondays, 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 monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

And the winner is....

Investment Challenge on ends August 20th! Who will be in New York with Jim Cramer for the opening bell?

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