Publish date:

TheStreet.com's MIDDAY UPDATE

October 1, 1999


Market Data as of 10/1/99, 1:02 PM ET:

o Dow Jones Industrial Average: 10,219.18 down 117.77, -1.14%

o Nasdaq Composite Index: 2,716.86 down 29.30, -1.07%

o S&P 500: 1,271.61 down 11.10, -0.87%

o TSC Internet: 636.59 down 10.79, -1.67%

o Russell 2000: 422.98 down 4.32, -1.01%

o 30-Year Treasury: 99 21/32 down 1 14/32, yield 6.140%

In Today's Bulletin:

o Midday Musings: Much-Feared Trading Month Gets Off to Rough Start
o Herb on TheStreet: Did a New Revenue Recognition Policy Save the Day for Transaction Systems Architects?

TheStreet.com on the Fox News Channel

Gruntal's Peter Green does the "Drill" with Herb Greenberg and DanColarusso. Find out which stocks the technical analyst likes and which ones he'd most like to short. And Gary B. Smith goes head-to-head with Adam Lashinsky over two top market indexes in Chartman. Will it be buy, sell or hold for the Nasdaq and the S&P 500? Also, Jim Cramer's calling for a rough road in the month ahead. He'll tell how he plans to dodge the missiles of October. "TheStreet.com" on the Fox News Channel airs Saturdays at 10 a.m. and 6p.m. ET and Sundays at 10 a.m. ET. FNC is Fox's 24-hour cable news channel. To find the Fox News Channel inyour area, call your local cable operator or see our "TSC on Fox" page at www.thestreet.com/tv (look for the yellow box in the upper right hand corner).

TheStreet.com Community

You know TheStreet.com's the place for great market commentary, but did you know it's also the place for intelligent investing discussion? Whether it's Cramer's commentary or breaking news, we bring the conversation straight to you. Check out these message boards in the Community section:

Helene Meisler: A Sigh of Relief


James Cramer: Drawbacks of a Diary and an October Chill


Jim Seymour: Is AOL Really Buying Excite?


Herb Greenberg: Noticed How E-Tailers Appear to Be Pulling Out All Stops to Lure New Customers?


Check the Community page every day for message boards and listings for chats and live events.

Also on TheStreet.com:

Wrong! Dispatches from the Front: The Cramer Show

By letting

Fox News Channel

cameras in his office, Cramer says he was caught making a bad call on York. In retrospect, it was a good call.


Hardware & PCs: One Year Later, Gateway's Gumption Pays Off

Gateway's efforts to move beyond the PC have come to fruition. Its shares are up 76% year to date.


Brokerages/Wall Street: As H&Q Sells, Volpe Brown Inherits Indie Bank Mantle

A strong '99 has made the boutique a Valley darling. Can it stay single much longer?


Fixed-Income Forum: Corts, Cabcos and Other Bond-Like Mutants

These securities are the latest iteration in the world of exchange-traded fixed-income securities.


Midday Musings: Much-Feared Trading Month Gets Off to Rough Start


Brian Louis

Staff Reporter

10/1/99 1:08 PM ET

Traders have ushered in October's trading with a scowl as stocks and bonds returned to September form. Both markets have slumped after posting solid gains


A sizable chunk of the blame for the moderate selloff fell on stronger-than-expected economic data, which renewed the interest-rate fears that have fallen from the headlines lately. Major stock proxies were down, but a little off their worst levels of the session.

The blue-chip

Dow Jones Industrial Average

was off 117, or 1.1%, to 10,220.



was the biggest drag on the blue-chip average.

Computer makers were taking a hit, with


(DELL) - Get Report

and H-P among the leaders of the slide.

Dell was slumping on a downgrade by

BancBoston Robertson Stephens

. As for H-P, it was tumbling after its CEO told analysts fourth-quarter sales would be at the low end of forecasts.

Semiconductor stocks -- which got shellacked yesterday -- were soaring. The

Philadelphia Stock Exchange Semiconductor Index

was up 2.3%. The SOX yesterday fell 3.6%.


Nasdaq Composite Index

was off 29, or 1.1%, to 2717. The

Nasdaq 100

was down 1.1% as well.


S&P 500

was down 11, or 0.9%, to 1271. The small-cap

Russell 2000

was off 4, or 1%, to 423.

TheStreet.com Internet Sector

index was down 11, or 1.6%, to 637. Running against the overall downswing in Net stocks were

America Online




(ATHM) - Get Report


In the Treasury market, the 30-year bond was lately down 1 11/32 to 99 20/32, yielding 6.15%. (For more on the fixed-income market, see today's early

Bond Focus.)

As for the above-mentioned robust economic data, the

National Association of Purchasing Management's

manufacturing activity index came in higher than expected for September, rising to 57.8 from 54.2 in August and topping economists' consensus forecast of 54.3, according to a


poll. Also troubling for the market was the prices index, which soared to 67.6 in September from 59.8 in August.

Christopher Low, chief economist at

First Tennessee Capital Markets

, called the NAPM report "very unexpected."

In terms of


policy, Low said he'd be "shocked" if the Fed raised rates next week because of what's happened to the stock market lately. He said the condition of the equity market right now is "the only reason not to raise rates."

The NAPM numbers, he said will push the Fed "over the edge" to a tightening bias. Low did say he expects the Fed to raise rates in November.


Federal Open Market Committee

is slated to meet on Tuesday.

In the world of financials, the

Philadelphia Stock Exchange/KBW Bank Index

was down 1.8%, in part on weakness in the bond market and on rate worries. The bank index surged yesterday. Meanwhile, the

American Stock Exchange Broker/Dealer Index

was slightly softer, down 2.2%.

Drug stocks continued to shine. The

American Stock Exchange Pharmaceutical Index

was up 1.9%, after advancing 1.7%.

Tony Cecin, director of equity trading at

U.S. Bancorp Piper Jaffray

, said there wasn't "a lot of power behind the selloff," and "no conviction" in the selling. The trader said "it just seems like" people want to go home for the weekend.

As far as the Fed goes, he said that the sense in the market is that it'll stand pat at the meeting next week.

On the

New York Stock Exchange

, decliners were clobbering advancers 1,803 to 1,079 on 481 million shares. On the

Nasdaq Stock Market

, losers were far ahead of winners 2,111 to 1,528 on 550 million shares.

On the NYSE, 105 issues had set new 52-week lows while 21 had touched new highs. On the Nasdaq, 77 issues had set new 52-week lows while new highs totaled 29.

Meanwhile, among other indices, the

Dow Jones Utility Average

was unchanged, the

Dow Jones Transportation Average

was down 1.6% and the

American Stock Exchange Composite Index

was down 0.8%.

On the Big Board,

Williams Communications

(WCG) - Get Report

, which is making its trading debut, was most active with 15.5 million shares changing hands.

On the Nasdaq, Dell was most active with 29.1 million shares changing hands.

Friday's Midday Watchlist

By Tara Murphy
Staff Reporter


Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.


Hewlett-Packard was sliding 3 1/2 to 87 5/8 after CEO Carly Fiorina said she sees fourth-quarter revenue growth at the low-end of the 10% to 13% range. Fiorina also said that the company had a "decent shot" at meeting the 22-analyst fourth-quarter estimate of 99 cents a share, up from the year-ago 79-cent profit.


(REV) - Get Report

was sinking 4 1/2, or 24.6%, to 13 3/4 after it said it has decided to pursue the sale of its worldwide Professional Products business and its noncore Latin American brands. Revlon said it is negotiating or in active talks with potential purchasers and anticipates concluding the sales by the end of the first quarter of next year for gross proceeds of more than $500 million. Revlon also said it has decided not to sell its remaining cosmetics, personal care, fragrances and skin treatment businesses.

Mergers, acquisitions and joint ventures


(T) - Get Report

was skidding 1 to 42 1/2 after it said it was considering strategic options relating to its 58% interest in Excite@Home. In response to rumors that America Online had been pinned as a possible buyer, AT&T said it has not forged any definitive deals. Shares of Excite@Home were advancing 2 7/8, or 6.9%, to 44 5/16, while AOL was climbing 2 1/2 to 106 9/16.

CMS Energy

(CMS) - Get Report

was sliding 3/16 to 33 3/4 after it said it would assume a $10 million gain for its purchase of



energy service subsidiary


. The combined company will be known as

CMS Viron Energy

. Shares of York were plummeting 13 1/4, or 36%, to 22 5/8.


(K) - Get Report

was falling 5/8 to 36 13/16 after it announced plans to acquire

Worthington Foods


, which was hopping 8 3/4, or 61.40%, to 23, for $24 a share, based on about 12.8 million shares outstanding, or $307 million. Kellogg expects to complete the deal by year-end. Worthington manufactures and markets "vegetarian and other healthful foods."

Omnicom Group

(OMC) - Get Report

was declining 2 5/16 to 76 7/8 after it announced plans to acquire marketing firm



, which was jumping 5 11/16, or 40%, to 19. The transaction, a tender offer estimated at $116 million, calls for Omnicom to pay $20 to M/A/R/C stockholders for each held share.


(PHB) - Get Report

was climbing 1/4 to 39 15/16 after it said its shareholders gave their stamp of approval for its proposed merger with


(DD) - Get Report

, which was advancing 1 3/4 to 62 3/16.


(SNE) - Get Report

was popping 4 3/4 to 154 13/16 after it said that it had forged a deal with its three listed units to make them fully owned Sony subsidiaries. According to the terms,

Sony Music Entertainment


Sony Chemicals


Sony Precision Technology

would become fully owned subsidiaries in March. The transaction, which is a stock exchange, calls for Sony to issue 32.98 million new shares.

Earnings/revenue reports and previews



was mounting 1 3/4 to 37 1/4 after it said it expects first-quarter earnings per share to between 29 cents and 31 cents, above the current three-analyst estimate of 24 cents a share.



was advancing 3/4 to 21 3/4 after saying it expects third-quarter earnings to match the year-ago 66 cents a share, greatly beating the two-analyst estimate of 52 cents a share.

Service Corp. International

(SRV) - Get Report

was skidding 3 1/4, or 30.7%, to 7 3/8 after it lowered its third-quarter earnings estimate to 10 cents to 13 cents a diluted share. The current eight-analyst estimate is for earnings of 22 cents a share.

Offerings and stock actions



was sinking 4, or 9.1%, to 39 9/16 after it said it planned to register to sell 13 million-common shares.

OshKosh B'Gosh


was jumping 4 3/8, or 28.3%, to 19 7/8 after it said it will buy back 4.5 million class A shares in a Dutch auction. The company said it would also buy back 100,000 shares in a self-tender.

Vodafone AirTouch

(VOD) - Get Report

was down 9 7/16 to 228 5/16 after it set a 4-for-1 stock split.

Analyst actions



was declining 2 1/16 to 47 3/16 after

SG Cowen

cut it to neutral from strong buy and dropped its price target to 57 from 110.


(APEX) - Get Report

was skidding 4 1/2, or 24%, to 14 1/4 after SG Cowen sliced its shares to buy from strong buy. After yesterday's close, the company

warned investors that it would post third-quarter earning below estimates.

British Telecom


was slipping 3 1/2 to 151 7/16 after

Lehman Brothers

slashed its earning outlook by 3%, but maintained its outperform rating.

Burlington Resources

(BR) - Get Report

was climbing 1/16 to 36 13/16 after

Deutsche Banc Alex. Brown

upped its rating on the shares to strong buy from buy.


(CEN) - Get Report

was sliding 4 13/16, or 19%, to 20 1/16 after

Goldman Sachs

sliced its rating to market outperform from its recommended list.

Dell was stumbling 1 1/16 to 40 13/16 after

Salomon Smith Barney

cut its October-quarter earnings estimate to 16 cents a share from 20 cents, citing possible problems stemming from Taiwan's earthquake. In addition, BancBoston Robertson Stephens cut the stock's rating to long-term attractive from a buy.

Engineering Animation


was falling 5 13/16, or 36.7%, to 10 after

J.P. Morgan

lowered its rating to market performer to buy.



was up 3/8 to 16 1/8 after


started coverage of the stock at attractive.

Four Seasons

was tumbling 1 1/16 to 35 1/2 after

Merrill Lynch

initiated coverage with an intermediate-term accumulate, long-term buy rating.

Hartford Financial

(HIG) - Get Report

was falling 3 1/8, or 7.65, to 37 3/4 after

Warburg Dillon Read

sliced its third-quarter earnings estimates to 80 cents from 93 cents a share.


(HUM) - Get Report

was advancing 1/16 to 6 15/16, while



shares were declining 3 9/16, or 8.2%, to 39 11/16, after SG Cowen cut their stock to neutral from buy.



was advancing 1/4 to 29 1/8 after Merrill Lynch rolled out coverage of the stock with an intermediate-term accumulate, long-term buy rating and a 12- to 18-month price target of 40.

Stillwater Mining


was skidding 1/8 to 26 3/4 after Warburg Dillon Read cut its fiscal 1999 estimates to 76 cents a share from $1.08.


(TIF) - Get Report

was slipping 7/16 to 59 1/2 after PaineWebber initiated coverage of the shares with a neutral rating.



was off 7/16 to 24 13/16, and

Ultramar Diamond Shamrock


was falling 5/8 to 24 7/8, while

Valero Energy

(VLO) - Get Report

shares were up 5/16 to 19 9/16, after

Lehman Brothers

raised their ratings to buy from neutral.


(UNM) - Get Report

was jumping 1 15/16, or 6.5%, to 31 3/8 after

Morgan Stanley Dean Witter

upgraded the stock to strong buy from outperform.

WellPoint Health Networks


was sinking 4 3/16, or 7.35, to 52 13/16 and

Foundation Health


was sliding 13/16, or 8.6%, to 8 5/8 after SG Cowen downgraded its shares to a buy from a strong buy.



(F) - Get Report

plans to spin off its auto-parts unit --

Visteon Automotive Systems

-- to shareholders and give wage and job guarantees to the division's factory workers,

The New York Times

reported, citing people close to the matter. The


reported that Ford pondered selling the unit to either


(LEA) - Get Report


Delphi Automotive Systems


, but labor issues along with tax considerations persuaded Ford to spin off the unit. Delphi was spun off in May from

General Motors

(GM) - Get Report

. Shares of Ford were off 1/16 to 50 3/16.

In the Inside Wall Street column in

Business Week

, penned by Gene Marcial, one item says some analysts and big investors think that


(STM) - Get Report

is going toward 100. Shares of STMicro were up 3 11/16 to 77 3/4.

The column also offers up a bullish item on



, a household appliances maker, which Peter Schaeffer, an analyst at

Donaldson Lufkin & Jenrette

, thinks will hit 40 in a year, and Doug Raborn, a money manager who heads his own investment shop, thinks the stock could go to 45. Salton shares were declining 5/8 to 30 3/8.

Separately, Salton said it withdrew its 4.6 million-share proposed stock offering because it doesn't think the company's future growth and current profitability are currently reflected in its stock price.

Also in the column,

Ballantyne of Omaha

(BTN) - Get Report

is mentioned as a possible takeover target. Analyst Michael Legg of

Prudential Securities

, is cited in the column as saying that


(IMAX) - Get Report

may acquire Ballantyne outright or acquire the 26% stake in the company that

ARC International

(ATV) - Get Report

owns. Shares of Ballantyne were climbing 9/16, or 10%, to 6 3/16, and ARC was advancing 1/16 to 1 1/2, while Imax shares were mounting 3/16 to 20.

Herb on TheStreet: Did a New Revenue Recognition Policy Save the Day for Transaction Systems Architects?


Herb Greenberg

Senior Columnist

10/1/99 6:30 AM ET

When companies change their revenue recognition policies, no matter the reason, bells should go off in investors' heads. It doesn't


mean there's a problem, but it can -- especially if it allows a company to become more aggressive by collecting more revenue up front.

Take the case of

Transaction Systems Architects


. It's one of the largest companies that provides software that banks use in their automatic teller machines. Until the end of last year, the company recognized the bulk of its revenue by accepting software licensing fees as a one-time payment, booked up front, for perpetual use. The rest of its customers paid on a monthly basis. (It's easier for many banks to go that route so they don't have to go through what can be a cumbersome internal approval process.)

Then, in the first fiscal quarter (ended Dec. 31) the company started offering a new type of contract to customers that created a new twist to its revenue recognition policy. Citing new accounting standards, it gave itself the flexibility to also sell a contract for a guaranteed term (say, four years). The customer pays monthly, but because there's a guaranteed term, the revenue is booked up front.

The advantage to the customer over the original monthly plan is that it probably gets a better price. The advantage to TSAI: It gets to book more revenue up front, and at the end of the contract the customer can continue to keep the software, by paying a monthly fee. (Even more money for TSAI.)

Here's the rub: Looking at the numbers, it would appear that software licensing revenue, especially in the second and third quarters, would've not only fallen off a cliff, but turned negative, if the company hadn't recognized up front an additional $14 million and $19 million, respectively, under the new program. "It's an easy conclusion to draw," says CFO Gregory Duman. "But what we try to explain to people is that the revenues that we accelerated as a result of that new accounting standard are revenues that we would've recognized anyway."

What's more, he adds, the company stands to get that extra pop at the end of the contract if the customer continues to pay a monthly fee. And "if you thought I was robbing my monthly

to book more revenues up front, wouldn't it be that my monthly was shrinking?" Duman asks. "It's not."

Maybe not, and maybe not yet. After all, the program is still new. But this type of change is all too familiar to short-sellers and accounting critics who've seen other companies try similar book-it-now ploys by changing their revenue recognition policies only to blow up when they can't keep adding new customers, under the new plan, at a fast enough pace. (Do




(PEGA) - Get Report

ring a bell? Pyxis has since been sold.) And what about that extra revenue when a contract ends and guaranteed-term customers start paying monthly? Given the short lifespan of software, thanks to leapfrogging technology, the skeptics think that's a stretch.

For a company trading at 22 times earnings, it had better not be.

Short Positions


To repeat what I posted on the


boards yesterday,


(AMZN) - Get Report



, at least to me, were very confusing. More like a giant garage sale, held in some barn, than a shopping mall. And I felt baited and switched. For example, when I searched for a TI-83 graphing calculator it switched me to Amazon auctions, where the price was great.

But I don't wanna bid! I wanna buy!

(Of course, I'm the same guy who wasn't a



fan early on, and now I can't live without it!)

Quakeophobia (confession: I'm a quakeophobe):


Richard Salko

, responding to

yesterday's item on the potential impact of earthquakes in Silicon Valley, writes: "Your comments on a potential earthquake are interesting but not new. In

Reminiscences of a Stock Operator

, 'Larry Livingston,' a.k.a. Lawrence Livermore, talks about how he shorted the

Union Pacific

(UNP) - Get Report

and made $250,000. His timing coincided with the 1906 Earthquake."

And there was this, from

S. Kirkeby

, who wrote: "Glad you brought up seismic seizure. My condo in Palm Springs is on the eastern edge of the fault. Will have great ocean view when the time comes." (Ah, but will the value go up or down?)

Finally, I had mentioned that when it comes to quakes


tried to ridicule me on last week's


show. "I didn't try to ridicule you," he wrote, "I ridiculed you."

As I told him: We'll see who has the last laugh. (I lived through the last big one, in 1989. No fun.)

Finally, setting the record straight:

Yesterday's item on Amazon said that Jeff Matthews was short Amazon stock. Wrong! As was the case when he wrote his piece

here a month ago, he holds out-of-the-money puts. No dummy he.

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.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TSC.

Copyright 1999, TheStreet.com