The Cisco/StrataCom merger is featured in a Special Section tonight, and a FoolWire covers the Bell Atlantic/NYNEX union. You'll find our Special Sections and FoolWires on the Evening News screen.
Also of interest to many Fools is the Iomega annual shareholder meeting, being held tomorrow in Utah. A flock of Fools are finding their way there and we plan to bring you a special collection of eyewitness reports tomorrow night.
StrataCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STRM)") else Response.Write("(NASDAQ: STRM)") end if %> discovered new stratospheres today, soaring $9 3/16 to $47 15/16 after news broke that the company was being bought by Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %> for $4 billion in stock. Cisco Chief Executive Officer (CEO) John Chambers said that he expects the acquisition to be dilutive to earnings in 1996, but to enhance earnings in following years, as Cisco integrates StrataCom's wide area network (WAN) expertise with its own local area network (LAN) know-how. Cisco dropped $7/8 to $46 7/8 on the news.
Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> and NYNEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NYN)") else Response.Write("(NYSE: NYN)") end if %> also announced an agreement to merge today, driving Bell Atlantic shares up $2 1/4 to $67 3/4, while NYNEX shares dropped $2 5/8 to $50 3/8, as investors had been hoping for a higher premium. Given the intention of Pacific Telesis and Southwestern Bell to merge, we might be back to just AT&T again in a few years! In related news, CORE, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CORE)") else Response.Write("(NASDAQ: CORE)") end if %> advanced $1 1/2 to $15. The company, selected earlier this month to provide managed disability services for Bell Atlantic's employees, apparently has even rosier prospects now.
Vantive Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VNTV)") else Response.Write("(NASDAQ: VNTV)") end if %> surged $5 1/2 to $34 1/2 as investors eagerly await the company's earnings report on Wednesday. Last week the company, a provider of customer interaction software, said it expected to beat analyst estimates of $0.04 EPS by $0.06 to $0.07. Remedy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RMDY)") else Response.Write("(NASDAQ: RMDY)") end if %>, sharing the same business niche and expected to report earnings tomorrow, was also up, rising $6 1/4 to $73 1/4.
Software companies had a field day today, with Adobe <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADBE)") else Response.Write("(NASDAQ: ADBE)") end if %> up $2 13/16 to $37 13/16, Broderbund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BROD)") else Response.Write("(NASDAQ: BROD)") end if %> rising $1 1/4 to $43 1/4, Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORCL)") else Response.Write("(NASDAQ: ORCL)") end if %> advancing $1 1/8 to $33 1/8, Intuit moving $1 5/8 to $48 7/8, and Microsoft gaining $3 to $112 3/4. The momentum might be related to Microsoft's record earnings reported last week, coupled with CFO Mike Brown's bullish comments about PC sales and the growing software market. America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> also surged today, climbing $3 to $62 1/2 following Friday's spinoff of H&R Block's online service, CompuServe.
QUICK TAKES: GEMSTAR INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GMSTF)") else Response.Write("(NASDAQ: GMSTF)") end if %>, perhaps best known for its "VCR Plus+" TV recording system, popped up $4 3/4 to $33 1/2 after Alex Brown reinitiated coverage of the company, rating it a "strong buy". Last week the company reported earnings, with net income up 46% from the same period last year. Gemstar came public last October. . . METATOOLS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MTLS)") else Response.Write("(NASDAQ: MTLS)") end if %> reported its third consecutive quarter of growth today, with revenues up 61% from the year-ago quarter. Investors must have been pleased, as they drove shares up $2 1/4 to $23 1/2. . . SHOWBIZ PIZZA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHBZ)") else Response.Write("(NASDAQ: SHBZ)") end if %> today announced that it had doubled its earnings per share (EPS) over the year-ago quarter, and set a 3-for-2 stock split. Shares mushroomed by $2 1/8 to $22 7/8 in response. . . JUNO LIGHTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JUNO)") else Response.Write("(NASDAQ: JUNO)") end if %> lit ahead $1 3/16 to $14 11/16 on the heels of favorable coverage in Barron's over the weekend. Last month the company gave analysts a bad surprise, reporting earnings 38% below estimates due to labor settlement and executive relocation charges. . . IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>, on no apparent news, zipped ahead $4 to close at $41 1/8. The company holds its annual shareholder meeting tomorrow in Salt Lake City, UT. . . ALCIDE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALCD)") else Response.Write("(NASDAQ: ALCD)") end if %> leapt $4 3/4 to $24 1/4 after gaining FDA approval for a food additive to disinfect chicken carcasses during processing.
Microwave Power Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MPDI)") else Response.Write("(NASDAQ: MPDI)") end if %> lost power today, falling $1 3/8 to $5 3/4 as investors worried about the company's impending earnings announcement. J.P. Morgan analyst Greg Geiling pointed to a slowdown in the personal communications services (PCS) market. Microwave Power makes amplifiers for the cellular and wireless telecommunications market.
MIDCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCCI)") else Response.Write("(NASDAQ: MCCI)") end if %> shares lost $1 1/8 to $7 3/8 today, after the company and several of its executives were named in a lawsuit alleging securities laws violations. MIDCOM, which provides small- and medium-sized companies with telecommunication services, denied that there was any basis to the claims.
Consilium <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSIM)") else Response.Write("(NASDAQ: CSIM)") end if %> dropped $7/8 to $7 3/4 after the developer of manufacturing-execution-system software (MES) announced it would restate its earnings. 1995's fiscal year and fourth quarter will be revised downward because of a salesperson's falsification of two orders, but the company could not predict by how much.
QUICK CUTS: ALLIED HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AHPI)") else Response.Write("(NASDAQ: AHPI)") end if %> dropped $1/2 to $9 3/4 after being downgraded by Cowen & Co. from "buy" to "neutral". . . ORBIT SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORRA)") else Response.Write("(NASDAQ: ORRA)") end if %> shares fell to earth today, dropping $1 to $7 1/2. Last week the company reported earnings far below levels from last year. . . NATIONAL POWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NP)") else Response.Write("(NYSE: NP)") end if %> flagged $2 3/8 to $36 7/8 today. Late last week the company was downgraded by Phoenix Duff and Phelps to "hold" from "buy", with the analyst pointing to a recent run-up in the price due to speculations of a takeover by Southern Co.
FOOL ON THE
HILL:
Connectivity Convergence
Analysts have traditionally perceived equipment for local area networks (LANs), wide-area networks (WANs) and giant telecommunications backbones as unique product categories with little integration and no crossover. The small network within an office, the larger network that hooks multiple offices together and the massive switches that ensure telecommunications traffic moves unimpeded have been seen as having very little in common, except that their ends are connected.
Convergence, or the notion that one company could provide integrated, end-to-end solutions has only gained credence for large network customers over the past few months. Although some have been calling for this for years, it is only the killer application of online communications which has driven the inevitable convergence of all of this connectivity hardware and software forward at an accelerated rate. Companies can no longer afford to fear what will happen if one equipment developer gets control of a number of markets -- they are too preoccupied with pending battles to maintain their own markets.
With the StrataCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STRM)") else Response.Write("(NASDAQ: STRM)") end if %> acquisition, Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %> has completed a product tableau that is unmatched in the industry, except perhaps by the largest telecommunications companies like Northern Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> or Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %>. The company now supplies connectivity equipment for both the smallest office-based LAN and the largest telecommunications giant. The networking equipment giant has been transformed into a one-stop shop for all of a company's connectivity needs. They have become what is diplomatically called a "strategic vendor" -- a company that can partner with almost any company in the world to provide network solutions by building and maintaining a scalable network.
The central issues for telecommunications, cable, telephony and Internet service providers all trying to climb into each others' market has been making the purchasing decision easier. With Cisco's proprietary IOS software imbedded in each of its hardware products, companies who choose Cisco products can expand their networks at will without worrying about painful integration of assorted vendors' equipment. When Cisco takes StrataCom's switches and puts in its IOS software, they will suddenly be the first company able to offer an integrated point-of-presence (POP) for Internet service providers (ISPs).
A POP is the place through which various users connect to a network via dial-up or transmission control protocol-Internet protocol (TCP-IP). Until now, an ISP had to buy products from a variety of companies to set up a working POP. Although they still might go to vendors like Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %> to support Integrated Services Digital Network (ISDN) or dial-up customers, the Cisco POP and StrataCom ATM switch can now be packaged together in one unit. StrataCom's strength is in asynchronous transfer mode (ATM) -- as well as its frame-relay switches for wide-area networks (WAN).
Close to the "backbone" of the network, these switches are often deployed adjacent to routers by Internet service providers as a low-cost way to speed up network traffic. Without being able to offer these switches as an integrated part of its Internet POPs, Cisco was vulnerable to anyone else who could. Now, Cisco has moved one step ahead of its competition, deflating the conventional wisdom that it would acquire the 91% of StrataCom-competitor Cascade Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCC)") else Response.Write("(NASDAQ: CSCC)") end if %> that it did not own, and putting itself out front as the key connectivity equipment provider.
The fact that Cisco Systems has consistently outperformed earnings expectations did not help to blunt negative reaction to the fact that the 80 million-plus shares that would be issued in this acquisition would be dilutive to earnings. The fact that Cisco's $250 million gain on its strategic investment in Cascade Communications would balance this out did not assuage shareholders, rushing to dun the stock for $7/8 to close at $46 7/8.
Investors holding networking companies will increasingly own pieces of a puzzle instead of a whole company, despite Cascade's protest today that the Cisco-StrataCom merger did not impact it at all. In the dance of musical chairs that will continue over the next few months and years, players that do not find a seat to land in risk being kicked out of the game altogether. Connectivity equipment providers must integrate in order to provide the level of service that the Digital World requires. As consumer appetites for truly interactive content expands geometrically, networks will need to be deployed at a rapid pace and consumers will not forgive those whose networks do not run smoothly.
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