INDEX:
I. Market News: Earnings Warnings Spook Tech Investors
II. Heroes: PEPCO, Silicon Graphics, Advanced Materials, InterVoice
III. Goats: Adv. Micro, WMS, Players, Bus. Resource, Medar, Accept. Ins.
IV. Investment News: Cut-Throat Competition in Storage Devices
V. Calendar: Tuesday's Economic Events
MARKET CLOSE
DJIA: 4769.93, up 5.78
S&P 500: 581.81, up 0.08
NASDAQ: 1046.15, down 7.24
MARKET NEWS
Tough day on the market to welcome MF Templar's return to the News. Ouches all around as Western Digital (Business News) and Advanced Micro Devices (Goats) report earnings woes, weighing down the Nasdaq Composite. Doesn't anybody realize those companies are listed on the New York Stock Exchange? Yeesh.
If you have not taken the opportunity, check out the new and improved Economic Indicators coverage that is being provided by Pat Ellis. Earnings coverage will resume starting today as well. Apologies to any who were miffed at going a week cold turkey. Only goes to show you how much you really use 'em, eh?
HEROES
Baltimore Gas & Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BGE)") else Response.Write("(NYSE:BGE)") end if %> acquired Potomac Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:POM)") else Response.Write("(NYSE:POM)") end if %> today, continuing the trend of growth-through-gobbling in the utility industry. Potomac Electric, better known to residents of Northern Virginia as PEPCO, rose $1 3/4 to close at $23 1/4. The two companies will become one, with Baltimore Gas & Electric shareholders receiving 1.0 shares of the new company for every share they currently hold and Potomac Electric shareholders receiving 0.997 shares of the new entity for every share they hold. The combined corporation will have $15 billion in assets and annual revenues of around $5 billion. Executives plan to cut 10% of the combined workforce and expect only minimal dilution as a result of the merger. Utilities, limited in the amount of profit they can generate by strict regulation, can only grow their revenues through acquisitions, which are encouraged by the relatively low interest rates available.
Silicon Graphics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SGI)") else Response.Write("(NYSE:SGI)") end if %> surged $1 7/8 to $34 7/8 today after announcing that it is joining the party in developing tools for the Internet. MindShare OutBox, probably the most unwieldy program name ever, a drag and drop desktop World Wide Web tool, can be used to generate Web pages that are hyperlinked to any data type which is easily accessible by a desktop PC or UNIX platform. Users of Silicon Graphics Indy and Indigo2 desktop systems will have these tools at their disposal, which are an integration of Silicon Graphics' WebMagic hypertext markup language editor and its collaboration and communication software.
Advanced Technologies Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ATMI)") else Response.Write("(NASDAQ:ATMI)") end if %> shares popped up $13/16 to $15 7/16 as executives continued a road show to support the company's two million share secondary offering. A "road show" is where company officials travel around the country meeting with investors in order to persuade them to buy shares. Advanced Materials, which makes diamond-based semiconductors, is a classic "concept" stock and is probably doing well as a result of its road show. Additional shares can sometimes help a company as many institutions are limited in how much of the outstanding shares they can own. For instance, Fidelity Management and Research policy dictates that their funds can only own 13% of the outstanding shares in any company.
InterVoice <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTV)") else Response.Write("(NASDAQ:INTV)") end if %> received a boost today, up $3/4 to $23 3/4, when GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GTE)") else Response.Write("(NYSE:GTE)") end if %> announced that it would use InterVoice's resource platform in the GTE advanced intelligent network architecture. InterVoice stated today that the platform is currently being tested by GTE to certify that it complies with their standards. InterVoice provides automated call processing "solutions," whatever those are.
GOATS
Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMD)") else Response.Write("(NYSE:AMD)") end if %> helped spark a technology sell-off today when it announced that its sales of 486 chips would be flat and that the sales had been at "sharply lower prices." Shares dropped $2 to $31 1/8 today in heavy trading. The company expects to earn less than its $0.86 per share in the prior quarter. In the same quarter a year ago, Advanced Micro Devices earned $0.86 as well. Advanced Micro Devices has been attracting value investors who were looking for entry into technology stocks. They felt that AMD had been unfairly beaten down because of perceived obsolescence in the face of competition from Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTC)") else Response.Write("(NASDAQ:INTC)") end if %>. Citing fat profit margins, solid cash flow, and good forward prospects with a chip that would compete with the Pentium, many mutual fund managers, including Paul Wick of Seligman Communications, championed the stock at some point. Continued delays of the Pentium-competition on top of today's report that other chip lines, including flash memory, would only be up 10% in the quarter, and flat CPU sales have dimmed prospects for the company going forward. It appears that Intel's drive to take the motherboard market and concomitant price cuts damaged AMD severely as well as its sizable lead in CPUs, nearing a full generation.
WMS Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WMS)") else Response.Write("(NYSE:WMS)") end if %> dropped $1 to $21 1/8 when news was released that it might increase its takeover offer for Bally Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BGII)") else Response.Write("(NASDAQ:BGII)") end if %>. A rival offer from Alliance Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ALLY)") else Response.Write("(NASDAQ:ALLY)") end if %> has threatened the previous exchange rate. Rumors are that WMS will notch up its offer to 0.625 shares of WMS for every share of BGII. The Boards of both companies are set to meet in a few days in order to discuss the proposal. WMS Industries and Bally Gaming manufacture slot machines and other gaming equipment.
WMS Industries was not the only gaming stock on the downside today, as Players International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PLAY)") else Response.Write("(NASDAQ:PLAY)") end if %> dropped $2 3/16 to $13 1/8 after Oppenheimer & Co. cut its rating on the company to "market performer." Estimates were trimmed as well because of underperformance at Player's Lake Charles, Louisiana facility. The company plans to continue its $20 million share repurchase, perhaps even increasing it.
Business Resource Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BRGP)") else Response.Write("(NASDAQ:BRGP)") end if %> plummeted $3 3/8 to $5 1/4 when it reported that fourth-quarter revenues would fall substantially below "previously published analyst expectations." The company is expecting to earn between $0.02 and $0.08 a share. Consensus estimates had been for $0.13. The company cited delays by two principal vendors as the reason for its problems. Business Resource provides workspace services and products.
Medar Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MDXR)") else Response.Write("(NASDAQ:MDXR)") end if %> gave investors the entire weekend to mull over its Friday press release stating that sales and earnings for the third and fourth quarters would be below analysts' expectations. Investors who took that weekend to cogitate on their dilemma were prepared early Monday morning with those sell orders, pushing the stock down $2 5/8 to $9 7/8. Inability to produce high technology products in a timely manner for delivery is the cause of Medar's woes. Medar has acquired additional space and plans to fix its problems before the end of 1995.
Providing crop insurance can be a turbulent business, as Acceptance Insurance <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AIF)") else Response.Write("(NYSE:AIF)") end if %> knows all too well, down $5/8 to $14 3/4 today. A "significant" early frost in the Midwest has raised the specter of negative earnings (politically correct lingo for losses) from Acceptance's crop division. Nebraska, one of the states hit worst, is Acceptance Insurance's most heavily covered market. Acceptance Insurance glumly admitted that this frost was an insurable event under the federally reinsured Multiple Peril Crop insurance Program. Soybeans and corn are the two crops receiving the worst damage.
INVESTING NEWS: Western Digital Continues Turmoil in Storage Sector
It was only a few days ago that the merger between bitter rivals Seagate Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SEG)") else Response.Write("(NYSE:SEG)") end if %> and Conner Peripherals <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:CNR)") else Response.Write("(AMEX:CNR)") end if %> turned the storage sector upside down. The specter of a giant that can cut prices to the bone and drive out smaller players by negotiating huge discounts with drive component suppliers was enough of a shock. The profit warning Western Digital sent out today knocked what was left of the stuffing out of the group.
Today, Western Digital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WDC)") else Response.Write("(NYSE:WDC)") end if %> burst everyone's bubble by announcing that earnings for the first quarter were going to come in "substantially below" analyst's expectations of $0.39 per share because of shrinking gross margins. Now don't get us wrong, Western Digital assured investors, this quarter and the next quarter will both be profitable. We just are under some competitive pressures, the company claimed. On the day, WDC shed $1 3/4 to $16.
Profitable or not, this is the second time expectations have had to be notched down for this hard drive manufacturer. Last year in this quarter, Western Digital earned $0.70 after accounting for dilution from increased shares outstanding. Now they are going to earn less than half of what they did last year in the midst of the most explosive technology boom since the 1967 'Tronics frenzy.
The culprit, as always in the mass storage group, is cut-throat competition thrusting prices down toward the break-even point. Price cuts on the 1.6 gigabyte Caviar drives at both the distribution and OEM levels took a bit out of profits. But don't lose any sleep if you are a shareholder. This move is "accelerating acceptance," the company said. Of course, when asked if giving the drives away free would further increase acceptance, the company was mum.
Western Digital's Microcomputer Products Group did not fare all that well either, with their PCI-to-SCSI (pronounced scuzzy) board solution moving out of the factories much more slowly than they anticipated. This product, which enhances power use by the computer to allow faster processing and data retrieval, is not one that the Daily News staff is readily familiar with. However, with its entry into the SCSI field, Western Digital is up against some serious competition in the form of Adaptec (NADSAQ:ADPT), among others.
Western Digital's core business is hard drives, although it has a substantial sideline in video chipsets and add-in cards for enhanced video graphics. So how can they go wrong here? Despite the widespread revenue and earnings increases we have seen in the technology sector thus far, the law of supply and demand has yet to be repealed. Storage has been the sector that analysts time and time have pegged as fat with over-capacity. The performance of most of these issues relative to the technology group over the past few months furthers this assertion.
Other drive maker casualties today include Seagate Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SEG)") else Response.Write("(NYSE:SEG)") end if %> down $1 5/8 to $42 3/8, Conner Peripherals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CNR)") else Response.Write("(NYSE:CNR)") end if %> losing $5/8 to close at $17 1/8, buffered by the takeover offer, EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:EMC)") else Response.Write("(NYSE:EMC)") end if %> slipping $3/8 to $18 1/4, Storage Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:STK)") else Response.Write("(NYSE:STK)") end if %> down a mere $3/8 to $25 1/8, possibly perceived as serving a different market. Component makers like Read-Rite <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RDRT)") else Response.Write("(NASDAQ:RDRT)") end if %> slipped $3 1/8 to $36 1/8, Hutchinson Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HTCH)") else Response.Write("(NASDAQ:HTCH)") end if %> dropped $5 1/2 to $62 1/2, and Innovex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INVX)") else Response.Write("(NASDAQ:INVX)") end if %> possibly saved by its medical wire and software branches, only lost $3/8 to $22 3/8. Red flags across the group! Even Exabyte <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:EXBT)") else Response.Write("(NASDAQ:EXBT)") end if %>, the drab, knocked-down dean of tape drives lost $1/4 to $13 3/8. Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IOMG)") else Response.Write("(NASDAQ:IOMG)") end if %>, a distant relative to these companies, lost $5/8 to $25 1/4, while Syquest <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SYQT)") else Response.Write("(NASDAQ:SYQT)") end if %> managed an up day in a down sector, gaining $1/8 to $13 5/8.
CALENDAR: Tuesday's Economic Events
---September Consumer Confidence (10:00)
---FOMC Meeting
Byline: Befumo/Sheard (MF Templar/MF DowMan)