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Updated from 10:03 a.m. EST


Tuesday brought more bad news for online retailer


, in the form of a bearish report by a

Lehman Brothers

analyst that questioned whether the Internet retailer will have money to sustain operations through 2001.

The analyst, Ravi Suria, predicted a "creditor squeeze" in the second half of 2001. In doing so, the analyst -- for the third time in less than a year -- advised investors to steer clear of Amazon's convertible bonds, which are debt securities that give investors the option of turning the bonds into stock.

After slipping in early trading, Amazon shares rebounded and were lately up 38 cents, or 2.6%, at $14.81.

Capital Idea

The report cautions that the company's working capital -- or its current assets minus liabilities -- is about $386 million, much less than the $1.1 billion in cash and marketable securities the company highlighted when it released quarterly earnings Jan. 30.

Drying Up?
Amazon sinks as cash crunch beckons

Suria said the working capital number is more relevant when judging the company's balance sheet, because it accounts for "temporary" gains in cash via items such as unpaid expenses and reduced inventory levels.

The problem at Amazon, says Suria, is the company's liabilities have risen much more quickly than have its assets, which are mostly cash. "More critically, working capital will continue to decline every quarter in the foreseeable future until the company starts generating enough cash profits to cover interest payments or receives a capital infusion," he says.

Of the $386 million in working capital at the end of the fourth quarter, down from $504 million at the end of the previous quarter, Suria says in his report: "This is well below our estimated liquidity requirements for the year and thus we believe that a creditor squeeze will take place in the second half of the year, creating considerable downside risk to revenue and cash estimates for the second half."

Grand Slam

For its part, Amazon slammed Suria and stuck by a previous statement that it has the cash it needs to get through 2001 without tapping the capital markets for more money.

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Amazon spokesman Bill Curry says: "We've made it very clear that we are in a solid cash position." He adds: "You just can't take this guy seriously." Curry says Suria, in a report last June, predicted that Amazon would be out of cash by the end of 2000. However, a review of that report indicated Suria said the company would run out of cash by the first half of 2001 if it maintained certain operating characteristics such as inventory requirements and capital expenditure, things the company has since modified.

Curry questioned whether working capital is the proper metric to judge Amazon's balance sheet.

"The whole think with working capital is that at the end of the day, cash pays the piper," Curry says. "We've given guidance that we do not need to go to the capital markets this year. We could for strategic reasons, but we don't need to."

Vendor Trouble?

The risk for Amazon could be that its vendors, such as publishers that supply books, may start to shorten payment terms. Delaying payments to suppliers, while customary in most businesses, has been a significant contributor to Amazon's cash flows, Suria contends.

"Vendors may not want to extend credit," says Tom Courtney, an analyst at

Banc of America Securities

. "That could be very serious. It's a risk factor." (Courtney rates Amazon a market perform -- in Wall Street parlance, this means stay away from the stock -- and his firm has no underwriting relationship with the company.)

Fay Landes, an analyst at

Sanford Bernstein

, says, "It's certainly something everyone would want to avoid. These are very serious issues. There's a lot to work with here." (Landes has a market underperform rating on the company, and her firm has no banking relationship with Amazon.)

Deep Divisions Within the Analyst Community

Amazon, which has been one of the most controversial companies on Wall Street, garners analyst ratings across a spectrum of bulls and bears. This was in evidence this week with the sharp contrast between Suria's report and a

Salomon Smith Barney

report published Monday titled, " Trading Growth for Profits in 2001."

In this report, analyst Tim Albright, who has an outperform rating on Amazon, described Amazon's balance sheet as "secure" and predicted the company would reach its goal of operational profitability by the fourth quarter without the need for additional capital. (Salomon is not one of Amazon's bankers.) shares have fallen over the last week, as the market

digested the news that it was laying off some 1,300 workers and dramatically lowering its revenue estimates for 2001. This news, released as the company reported fourth-quarter earnings, overshadowed what normally would have been considered good news: The company said it would become profitable on an operational basis in the fourth quarter of 2001.