INDEX:
I. Market News: Technology Slaughter Continues
II. Heroes: Timberland, Applix, Remedy, Cadbury
III. Goats: Sci. Atlanta, Andrew, Pacific Rehab., DSC, Network Express
IV. Investment News: No Glory for Novell
V. Calendar: Tuesday's Economic Events
MARKET CLOSE
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DJIA: 4726.22, down 42.99
S&P 500: 578.37, down 4.12
NASDAQ: 984.74, down 27.30
MARKET NEWS
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With the bond market closed for the Columbus Day holiday, stocks ventured out alone today, and the going wasn't pretty. Although trading was fairly light, program trading sent the technology-laden Nasdaq Composite plunging, and the Dow followed. For much of the day, program trading curbs were in place after the Dow dropped more than 50 points. The Nasdaq's loss was the equivalent of well over 100 Dow points. The dominant theme on the Street continues to be fears of earnings disappointments.
HEROES
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Timberland <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TBL)") else Response.Write("(NYSE:TBL)") end if %> rose $4 3/8 to $28 1/8 today in a down market, rebounding from the pounding the stock took on Thursday and Friday. Dan Dorfman set his sights on Timberland on Thursday when he reported that many pros were dubious about a much ballyhooed takeover. Timberland has been under pressure lately from the double whammy of a weak retail environment and rising postage costs. Timberland specializes in mail order outdoor clothing and footwear.
One technology stock made headway today in spite of the overall deluge. Shares of Applix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:APLX)") else Response.Write("(NASDAQ:APLX)") end if %> rose $1 1/4 to $21 3/4 on a recommendation from Art Samberg of Dawson Samberg, who reported that he liked Applix as well as Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ADPT)") else Response.Write("(NASDAQ:ADPT)") end if %>, Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BNET)") else Response.Write("(NASDAQ:BNET)") end if %>, and Integrated Process Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IPEC)") else Response.Write("(NASDAQ:IPEC)") end if %>, in spite of the correction he expected in the high-flying technology sector. It appears Samberg was right on the latter half of his prediction. Let's check back in three months and see if the first half is correct. Applix develops software applications for real-time decision support, whatever that is.
Remedy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RMDY)") else Response.Write("(NASDAQ:RMDY)") end if %> fought an uphill battle as well, rising $1 7/8 to $37 after a press release from the company stated that it would exceed analysts' expectations for the quarter. Based on preliminary results, revenues and earnings per share (EPS) should increase roughly 100%. Demand has been "strong" for Remedy's flagship product and for several recently introduced products. Remedy develops adaptable client/server applications software for support and business processes.
Cadbury Schweppes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CADBY)") else Response.Write("(NASDAQ:CADBY)") end if %> rose $2 to $34 on rumors that Britain's Unilever is considering a buy-out of the soft drink manufacturer. Unilever is a London-based diversified consumer products giant while Cadbury Schweppes is the owner of Canada Dry, Seven-Up, and Dr. Pepper. Cadbury itself has only recently been on the other end of a buy-out, purchasing Dr. Pepper in an attempt to shore up its own market position.
GOATS
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Scientific Atlanta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SFA)") else Response.Write("(NASDAQ:SFA)") end if %> was down $3 to $12 5/8, Performance Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PSIX)") else Response.Write("(NASDAQ:PSIX)") end if %> lost $1 1/2 to $15 1/8, Duracraft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:DUCR)") else Response.Write("(NASDAQ:DUCR)") end if %> plunged $12 1/2 to $24 3/4, BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BMCS)") else Response.Write("(NASDAQ:BMCS)") end if %> tumbled $8 3/4 to $34 1/2, and Open Environment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:OPEN)") else Response.Write("(NASDAQ:OPEN)") end if %> was slapped $7 1/2 to $8. What do all of these companies have in common? They all announced late Friday that their earnings for the third quarter would not meet expectations for a variety of reasons. The jittery market was particularly unforgiving when it came to these companies.
Andrew Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ANDW)") else Response.Write("(NASDAQ:ANDW)") end if %> tumbled $10 7/8 to $43 as Merrill Lynch got out the scissors today, cutting its rating on the stock from "above average" to "hold" on a price basis. MF Boring has been following Andrew closely. Check out the Andrew folder for the fruits of his quick call to Andrew's investor relations department. Andrew Corp. manufactures specialized antennas and transmission lines used for telecommunications systems.
Pacific Rehabilitation & Sports Medicine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PRHB)") else Response.Write("(NASDAQ:PRHB)") end if %> lost $1 1/8 to $5 1/8 after it announced for the second quarter in a row that earnings would be far below expectations. The company stated that investors should expect around $0.02 a share rather than the $0.10 consensus estimates. The company cited legislation in Hawaii which reduced reimbursement, non-performing acquisitions, and greater-than-expected seasonal softness as the reasons for the air pocket.
DSC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:DIGI)") else Response.Write("(NASDAQ:DIGI)") end if %> was down $5 1/8 to $39 1/4, losing for the second day in a row after announcing early Friday that earnings would not meet expectations for the third quarter. DSC Communications projected lower-than-expected switching systems revenues and softness in Europe as the cause of its woes. The company maintained that earnings would represent an improvement when compared to the same period a year ago and bookings and backlog would increase as well. DSC makes digital switching, transmission, access, and private network products.
Network Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NETK)") else Response.Write("(NASDAQ:NETK)") end if %> beat consensus estimates by a penny on Friday but was still trashed today, down $2 1/4 to $7 1/2. Estimates had called for $0.06 per share for Network Express and the company delivered $0.07 on almost twice as many shares. The problem is that Cisco Systems, 3Com, and Bay Networks have been aggressively ramping up their ISDN offerings, making Network Express' niche more competitive.
INVESTING NEWS: Just Say No to Novell
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Is there something rotten in Orem, Utah? Investors have been wary of network giant Novell Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NOVL)") else Response.Write("(NASDAQ:NOVL)") end if %> for a while now. Ever since Novell's buyout of WordPerfect was criticized as a bail-out of their Utah neighbors rather than the acquisition of a quality product, most avowed technophiles have avoided shares of the software company. Today that pronounced aversion was validated when the company reported that continued weakness in its application segment will drive its earnings for the fourth quarter down to the $0.15- to $0.18-per-share range, well below the $0.28 that analysts were expecting. Novell shares dropped $2 3/4 to $14 5/8 on the news.
Applications is the software industry's buzzword for word processors, spreadsheets, databases, and assorted business-ware. Novell's purchase of WordPerfect was justified as necessary to flesh out the "suite" of applications Novell packaged together for business users. Microsoft, however, has dominated the market for "suites," extending its market share into the 80% range at the expense of sales for many Novell products. Microsoft's ingenious move to package its applications together has paid off in spades, as the also-ran products that Novell and Lotus slapped together to salvage lost market share were just too late to stand up against Microsoft.
In the wake of disappointing third-quarter earnings, Novell shares had been buoyed by a rumored takeover coming from IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IBM)") else Response.Write("(NYSE:IBM)") end if %>. Why IBM would ever want Novell was never really settled, as it would have just acquired another roster of products under fire from industry giant Microsoft. Although many have argued that Microsoft's products do not cut in on Novell's lower-end networking market, the reality of the situation has been Windows NT increasing market share at NetWare's expense. The fact that Novell's most recent upgrade, Netware 4.1, has universally been dismissed as lame has not helped matters either.
Novell was careful to add in its press release that fourth-quarter revenue from its principal network software business would reflect good year-over-year growth, making its foray into the applications business all the more misguided. If Novell wants to trumpet its networking business and say that applications are the problem, why did it make the acquisitions and put together the suite package in the first place? Might Novell ultimately be better served by dumping its disastrous head-to-head competition with Microsoft in the applications market and focusing all of its energy on stopping Windows NT from eroding the market Novell has owned for more than a decade?
Let's look at the numbers: Novell said preliminary indications based on the first two months of the quarter suggest that its WordPerfect line of personal productivity application products could decline more than $75 million from the $134 million contributed by applications the year before. In 1994, applications were 28% of Novell's revenues; in the fourth quarter of 1995, they will be less than 13%.
Is it just the fact that the most recent version of WordPerfect is a memory hog, trying too late to catch up to Word for Windows? No, it is actually something a little more ominous; Novell did not have Windows 95 applications ready to go and in fact will not have them until 1996! Why this company even pursues the applications business without moving into the most recent version of the Windows operating system (which would generate much of the new revenues for the next two years), is mind-boggling. Why bother if they are not going to do what it takes to compete?
Hambrecht & Quist and Wheat First both took today's opportunity to cut their ratings on the shares from "buy" or "outperform" to "hold." Hambrecht & Quist stated in a research report that they "believe that it will take longer than anticipated for Novell to emerge from yet another disappointment." Even with the old estimates intact---which they are not---Novell looked fairly priced for a company growing at a 15% rate with forward estimates of $1.27 (now probably in the $1.10 range). Selling at 18 times earnings right now, Novell reflects probably more potential for its business than it deserves, unless it dumps the applications segment. In the end, Novell's foray into a non-core business has resulted in a weak pop out to the catcher and not the home run that Ray Norda apparently imagined.
CALENDAR: Tuesday's Economic Events
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Byline: Befumo/Sheard (MF Templar/MF DowMan)