Tuesday, February 27, 1996
MARKET CLOSE

INDEX:

I. Market News: Telecoms Move, Retailers Shake
II. Heroes: Florida East Coast Industries, Saint Joe Paper, Centigram Communications, SystemSoft, IKOS, Bio-Technology General, Trans-Industries, Chiquita Brands, Park-Ohio
III. Goats: Microchip Technology, Health Management, Netcom, UUNet, America Online, Micron Electronics, Cephalon, Avant!, Esmor Corrections
IV. Investment Perspective: Micron Tech: Bang the DRAM Slowly?
V. Another Foolish Thing: Beat the Fool! New Game in FOOLDOME

MARKET CLOSE

DJIA: 5549.21 -15.89 (-0.29%)
S&P 500: 647.24 -3.22 (-0.49%)
NASDAQ: 1106.16 -6.89 (-0.62%)

MARKET NEWS

Well, it was another rocky day at the market. The Dow headed south fast and furious in the morning, triggering trading curbs, but then started to recover in the afternoon, cutting losses in half.

There was a lot of excitement in the telecom arena, as US West Media Group announced a multi-billion dollar plan to acquire privately-held Continental Cablevision, effectively becoming the country's third-largest cable operator. This is the biggest deal to date since President Clinton signed the telecom reform act, permitting cable and phone companies to intermingle their businesses more. AT&T unveiled AT&T WorldNet, and joined the Internet access provider market, offering limited *free* usage to its consumer long-distance customers, and sending Internet stocks tumbling. See MF Templar's Special Section on this for more information---in the main screen listbox.

In other news, The Limited and Wal-Mart announced earnings shy of estimates---read all about it in the Special Sections in the Fool main screen listbox. Also, for a Foolish perspective on the day's economic indicators (producer prices, retail sales, consumer confidence), check out MF Merlin's report---accessed at the lower-right corner of the Evening News screen.

HEROES

Florida East Coast Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:FLA)") else Response.Write("(NYSE:FLA)") end if %> soared $8 1/8 to $83 1/8 after the company announced it would sell its railway unit and turn over its real estate holdings to its largest shareholder. Saint Joe Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SJP)") else Response.Write("(NYSE:SJP)") end if %>, which owns 54% of Florida East Coast, moved up $4 3/8 to $59 3/4 on the news. The paper company has expressed a "strong interest" in acquiring the company's Gran Central Corp. in a tax-free exchange for the shares it currently holds in Florida East Coast. Florida East Coast has set up a special committee to examine if today's offer is an acceptable price. Many analysts favor the diversified conglomerate shedding non-core businesses in an effort to boost shareholder value.

Centigram Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CGRM)") else Response.Write("(NASDAQ:CGRM)") end if %> rose $2 3/4 to $21 5/8 on the strength of its first quarter earnings. Centigram reported a gain of $0.07 per share compared to a loss of $0.12 per share a year ago. The Street had only been expecting a gain of $0.05 per share. Montgomery Securities upgraded the shares to buy from hold on the news, putting out estimates of $0.85 EPS for the current fiscal year and $1.51 for fiscal 1997. Centigram makes communications servers that integrate voice, data and facsimile applications. The company also licenses a product called TruVoice, software that converts text into speech.

SystemSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SYSF)") else Response.Write("(NASDAQ:SYSF)") end if %> announced today that it would report fourth quarter earnings slightly above analysts' earnings estimates of $0.10 per share, sending the shares soaring $3 1/8 to $14 1/8, up over 28%. Chief Executive Officer Robert F. Angelo told Dow Jones he sees the company growing its business at a 50-60% annual rate this year based on strength in its existing core businesses. IKOS Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IKOS)") else Response.Write("(NASDAQ:IKOS)") end if %>, which forecast that it would beat its estimates two days ago, continued to rise itself, up $1 1/8 to $16 1/4. Needham and Co. raised the stock from buy to strong buy today based on this news, proving yet again that the market is *perfectly* efficient.

Bio-Technology General <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BTGC)") else Response.Write("(NASDAQ:BTGC)") end if %>, after competitor Novo-Nordisk A/S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:NVO)") else Response.Write("(NYSE:NVO)") end if %> had an preliminary injunction against it lifted, rocketed $1 7/16 to $8 15/16, a gain of 19%. Why would this news cause Bio-Technology shares to rise so? Because Bio-Technology has a similar injunction standing against it and the market believes it is now likely that this will be lifted as well. Bio-Technology and Novo-Nordisk want to sell a version of human growth hormone in the United States. Genentech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GNE)") else Response.Write("(NYSE:GNE)") end if %> is the company that has been getting the injunctions and it still maintains that these other products infringe on its human growth hormone patents. Novo-Nordisk, ironically, closed unchanged at $33 7/8.

QUICK TAKES: TRANS-INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TRNI)") else Response.Write("(NASDAQ:TRNI)") end if %> rose $3/8 to $4 3/8 today after reporting earnings of $0.17 EPS. . . CHIQUITA BRANDS INT'L <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CQB)") else Response.Write("(NYSE:CQB)") end if %> peeled off gains of $2 1/8 to $15 5/8 after reporting a smaller-than-expected loss from continuing operations of $0.58 EPS. . . PARK-OHIO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PKOH)") else Response.Write("(NASDAQ:PKOH)") end if %> reported earnings of $1.15 EPS versus $0.52 EPS, rising $3 1/8 to $17 1/8 as a result.

GOATS

Microchip Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MCHP)") else Response.Write("(NASDAQ:MCHP)") end if %> got whacked for $7 1/2 today, slipping to $28 1/2 in heavy trading. The manufacturer of microcontrollers warned last night that its earnings and revenues would be lower than expected in the current fiscal quarter. The company experienced a delay in orders as a result of slow holiday sales of cellular phones, personal computers and other devices that use the company's products. Microchip, which designs proprietary microcontrollers for a broad variety of devices, had been thought to be immune from the cyclicality its semiconductor brethren endured. One analyst compared Microchip's woes to the inventory correction Xilinx <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:XLNX)") else Response.Write("(NASDAQ:XLNX)") end if %> went through during that company's fourth quarter. The CFO stated in an interview today that earnings for the quarter would be flat at worst and that the company could earn $1.80 to $1.90 per share in fiscal 1997.

Health Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HMIS)") else Response.Write("(NASDAQ:HMIS)") end if %> was down again today, hurtling southward $2 3/4 to $3 1/4 (45%!) after it announced that it discovered some accounting irregularities and that it may default under its loan agreements as a result. The company will take significant write-offs for accounts receivable and inventory, as well as undergoing already-planned operational consolidation. All of this will total about $15-20 million for this provider of integrated health management services. The chairman and CEO has tendered his resignation as a result of this affair. The company anticipates no adjustments will be made to prior quarterly earnings results.

Well, if it provides Internet access, it was down today. Netcom On-Line <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NETC)") else Response.Write("(NASDAQ:NETC)") end if %> was off $5 to $22 3/4, UUNet Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:UUNT)") else Response.Write("(NASDAQ:UUNT)") end if %> lost $3 1/4 to $32 while America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMER)") else Response.Write("(NASDAQ:AMER)") end if %> was down $4 13/16 to $49 1/8---all on the *news* that AT&T and Sprint were getting into the Internet access market. Maybe they will go down again tomorrow if someone points out that the sky is blue? If this news was not already built into these share prices by the Street, then we have no idea what they are doing out there when it comes to valuing shares. Check out today's Special Section on this news, gathering together all of the relevant press releases, company financials and including a take on the whole situation by our own MF Templar.

Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MUEI)") else Response.Write("(NASDAQ:MUEI)") end if %>, a recently spun-off subsidiary of Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MU)") else Response.Write("(NYSE:MU)") end if %>, was down $1 7/8 to $11 today after the company reported that it was taking a $30 million restructuring charge in its fiscal second quarter. The company will halt its Minneapolis manufacturing operations and discontinue sales of the recently acquired ZEOS personal computer line. Fool HQ, which bought some ZEOS machines, understands well why they were discontinued---only every other one seems to work. The company was racking up huge losses based on our returns alone.

QUICK TAKES: CEPHALON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CEPH)") else Response.Write("(NASDAQ:CEPH)") end if %> lost $3 1/2 to $20 today on rumors that it may have to run new clinical trials for its Myotrophin drug. . . AVANT! <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AVNT)") else Response.Write("(NASDAQ:AVNT)") end if %> pulled back $3 3/16 to $20 3/4 after gaining two days in a row following a conference presentation at a regional brokerage. . . ESMOR CORRECTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ESMR)") else Response.Write("(NASDAQ:ESMR)") end if %> continued to suffer a correction, dropping $5/8 to $11 1/4 after announcing it was consolidating the operations of a troublesome Immigration & Naturalization Services (INS) facility last week.

INVESTMENT PERSPECTIVE: Micron Tech: Bang the DRAM Slowly?

Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MU)") else Response.Write("(NYSE:MU)") end if %> put a stake in the heart of 4 meg DRAM today when it announced that it was halting production at its new Lehi, Utah wafer fabrication plant. Micron started building the production facility, or "fab", a few months ago when the market for computer memory, or DRAM, was red-hot. Up until a month ago the company had workers doing overtime in the harsh winter months, in an effort to get the thing up and running as soon as possible.

The chaos surrounding Micron's latest fab is but a chapter in the company's ongoing executive drama. Only a month ago, Chief Executive Officer (CEO) Steve Appleton was fired and rehired within eleven days---all because of this fab. Apparently, Appleton and majority shareholder J.R. Simplot disagreed about how the $4.0 billion capital expansion program should be financed. Appleton wanted to sell more shares but Simplot did not want his equity diluted anymore. This dispute culminated in a coup engineered by Simplot. On January 18th, the Board of Directors voted to remove Appleton.

Appleton's departure riled the executive ranks, however, who lost founding CEO Joe Parkinson in 1994 over a similar dispute with Simplot, the Idaho potato mogul. The executives en masse threatened to quit unless Appleton returned, prompting the Board to rehire the CEO it had fired after less than two weeks had passed. The defections have not ended here, as only three weeks ago, Allen Noble, a member of Micron's board of directors since the company was founded in 1980, resigned without comment. Simplot attributed Noble's departure to a disagreement with Appleton, but this statement on the surface appeared fairly suspicious.

Simplot, who made his fortune selling french fries to McDonald's, has always been a driving force behind this scrappy manufacturer of 4 meg DRAM. In an industry transitioning to 16 meg, 64 meg and 128 meg DRAM, Micron has stubbornly stuck to its knitting because of Simplot, focusing all its energies on the hyper-competitive 4-meg niche. For many investors, Micron *is* DRAM---despite the fact that the company is only the tenth largest supplier in the world, or that its production accounts for only 8-9% of world DRAM capacity. Even attempts to diversify into fast-SRAM have been superficial, as the company still lives and dies on the 4 meg DRAM.

Many believe that Micron, never known as an innovator, has been out-maneuvered by the Japanese and Korean DRAM manufacturers. Hitachi, NEC Corp., Toshiba, Fujitsu, Samsung, Hyundai and LG Semicon all have announced ambitious expansion plans with NEC maintaining that it will produce more 16 meg DRAM than 4 meg DRAM in this fiscal year---the first company ever to do so. As Micron's boardroom and executive offices are in turmoil between Simplot's "damn the torpedoes" growth approach and the more moderate path advocated by its executives, the new fab has become the lightning rod of this debate.

Understanding that there is more to the fab issue than just the semiconductor market, understanding that Micron's preference for 4 meg DRAM puts it at an extreme market disadvantage, and understanding that this fab was being built too fast and for the wrong reasons, of course the market would just punish wayward Micron and leave the rest of the technology stocks alone, right? Wrong. The semiconductor equipment manufacturers got smashed again as a result of this news, with shares of Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMAT)") else Response.Write("(NASDAQ:AMAT)") end if %> falling $3 17/64 to $38 1/4, Lam Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:LRCX)") else Response.Write("(NASDAQ:LRCX)") end if %> down $4 to $40 1/2 and KLA Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:KLAC)") else Response.Write("(NASDAQ:KLAC)") end if %> off $1 3/4 to $26 3/4.

"When the elephants are fighting, stay out of the jungle," an Asian proverb warns. With the Japanese and Koreans ganging up on Micron for DRAM market share, the company looks to be in a world of hurt. But this very battle for control will make semiconductor equipment a valuable commodity, with each of these DRAM companies raising the ante in the "no-limit" poker game (as Carl Johnson of Infrastructure, calls it). Is today's sell-off in semiconductor equipment shares justified? I don't think so. I think that investors are clearing out because they see each part of Rick Whittington's thesis coming to pass. On the surface, his analysis has been dead on up until now. What remains to be seen is whether or not Whittington has misread the cards, putting too much emphasis on Micron and Intel's specific problems and not enough on the unknown expansion plans of the industry giants, all curiously located in Southeast Asia.

As Carl Johnson quipped a few weeks ago, "isn't it strange that there has been nothing written on the Japanese and Korean expansion plans?" Something to think about, perhaps.

[For more information about Infrastructure, readers are encouraged to check out that informative Website at http://www.infras.com.]

YET ANOTHER FOOLISH THING: Fools on the Radio!

That's right! David and Tom Gardner are bringing their Foolish outlook to the airwaves this weekend. Tune in to the Monitor Radio's Weekend Edition---stations and times are listed in the Radio page.

Byline: Randy Befumo (MF Templar)