Today's Lunchtime News featured Oracle Corporation and their estimate-beating earnings announcement. Tomorrow we'll have another issue of our weekend new magazine, Fool's Gold, featuring an interview with Texas Instruments' chief economist Vladi Catto, a Sector Snapshot on women's apparel and accessory companies, and the Weekend Research Center.
You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. This weekend, Fool's Gold will be accessible from the main screen. In tonight's Fool on the Hill, MF Templar focuses on a Bear Stearns conference he attended this week. Enjoy!
ORACLE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORCL)") else Response.Write("(NASDAQ: ORCL)") end if %> reported its best fiscal quarter in years. Revenues surged 44%, while EPS grew 48.1%, which as 5.2% higher than consensus expectations. The company benefited greatly from an increase in application license sales of 73%, which confirmed the success that Oracle has enjoyed in bundling its database licenses with licenses for Web-centered applications. The apparent lack of analyst upgrades today could be due to the fact that Oracle's tax rate will increase 1.5% next year, eating into the increase in operating margins that the company enjoyed. Also a factor might be the fact that the company's compensation program usually produces a fourth-quarter surge. Oracle's stock climbed $3 1/8 to $38 on the news, while other database concerns also benefited from the news of continuing demand for Internet-related applications evidenced by Oracle's strong results -- INFORMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IFMX)") else Response.Write("(NASDAQ: IFMX)") end if %> was up $1 1/4 to $21 3/8, while RED BRICK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: REDB)") else Response.Write("(NASDAQ: REDB)") end if %> ended up $1 to $34 3/4.
Shares of APPLIED BIOSCIENCE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: APBI)") else Response.Write("(NASDAQ: APBI)") end if %> surged $2 7/16 to $11 9/16 today after a merger was announced with PHARMACEUTICAL PRODUCT DEVELOPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PPDI)") else Response.Write("(NASDAQ: PPDI)") end if %> in which one share of Applied Bioscience will be redeemed for approximately $15.00. The combined enterprise will retain the PPD name. According to the company, the newly-formed Pharmaceutical Product Development will be one of the largest publicly-traded contract research organizations with net revenue in excess of $200 million and contract research net revenue in excess of $150 million. Dr. Fred Eshelman, CEO of Pharmaceutical Products, estimated that the consolidation would be accretive to Pharmaceutical Product earnings for fiscal year 1997. The combined company's clients include the top 50 pharmaceutical companies of the world. Both companies currently conduct pharmaceutical research for other pharmaceutical companies that wish to outsource their research and development needs. Pharmaceutical Product stock closed down $4 1/2 to $35.
QUICK TAKES: ALLIANCE ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDS)") else Response.Write("(NYSE: CDS)") end if %> reported today that BANKERS TRUST NEW YORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> had increased its stake in the company by one million shares to 3.97 million shares, accounting for about 10.8% of the company. Shares of Alliance closed up $1/2 to $5 3/4... PRESSTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %> continued its wild ride, up $13 to $56 today after a $9 drop yesterday... Staffing services firm ROMAC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROMC)") else Response.Write("(NASDAQ: ROMC)") end if %> popped up $1 1/2 to $23 3/4 after Smith Barney started it with a "buy" rating. Staffing and temporary services concerns have been hot lately for momentum players... Israel-based TECNOMATIX TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCNOF)") else Response.Write("(NASDAQ: TCNOF)") end if %> announced a new software release today, which integrates production engineering tools for the CAD (computer-aided design) environment, and its shares rallied $1 7/8 to $19 5/8... AEP INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AEPI)") else Response.Write("(NASDAQ: AEPI)") end if %> announced that the acquisition of Borden's Global Packaging Business for $360 million will triple sales to $900 million, which sent shares of the polyethylene film manufacturer soaring $2 3/4 to $36 1/4... Shares of XEIKON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XEIKY)") else Response.Write("(NASDAQ: XEIKY)") end if %> recovered $1 5/8 to $11 3/8 today after Alex. Brown cut its earnings estimates for the company yesterday and sent the shares careening downward.
Any way you sliced it, the news looked bad to many shareholders. Improper bookkeeping and accounting burned MANHATTAN BAGELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BGLS)") else Response.Write("(NASDAQ: BGLS)") end if %> badly, cutting shares by over a third as they lox $7 1/2, falling to $13 3/4. The last two quarters' earnings are likely to be affected. Rodman & Renshaw analyst Ron Morrow, though, sees today's price plunge as an overreaction and feels the stock is a "buy", with the company growing at "better than 50% a year".
Semiconductor test equipment maker LTX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LTXX)") else Response.Write("(NASDAQ: LTXX)") end if %> slapped South Korean Daewoo Corp. with a suit today, alleging that Daewoo is reneging on a lot of purchase orders for equipment. Daewoo is countering that the orders were never authorized and were the result of "internal wrongdoing". Investors, fearing that LTX's earnings are now in jeopardy, sent shares down $2 3/4 to $6 1/4. Excluding these Daewoo orders, LTX's third quarter orders were 8% lower from the year-ago period, but those for the nine-month period ending April 30 were up 30%.
Lots of other companies were looking at the ground today, shuffling their feet, and mumbling something about not meeting analyst earnings estimates. And most of them paid a price for it. SPS TRANSACTION SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAY)") else Response.Write("(NYSE: PAY)") end if %> saw second quarter numbers below estimates due to declining credit quality and fell $7 to $17 5/8. HARRAH'S ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HET)") else Response.Write("(NYSE: HET)") end if %> forecast it would earn between $0.33 and $0.35 EPS next quarter, falling $3 1/2 to $27 5/8 for its troubles. In similar boats are SIERRA SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SERA)") else Response.Write("(NASDAQ: SERA)") end if %>, down $1 3/4 to $11 3/8, ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %>, slipping $1 5/8 to $14 1/8, DIAMOND MULTIMEDIA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DIMD)") else Response.Write("(NASDAQ: DIMD)") end if %> plummeting $3 3/4 to $10, and wireless communications concern PRONET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNET)") else Response.Write("(NASDAQ: PNET)") end if %>, plunging $6 13/16 to $11 1/2.
QUICK CUTS: ELCOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELK)") else Response.Write("(NYSE: ELK)") end if %> projected earnings of $1.10 to $1.20 EPS for this year and $1.30 to $1.50 EPS for 1997, knocking the stock down $2 7/8 to $18 1/8... Circuit-maker MERIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MERX)") else Response.Write("(NASDAQ: MERX)") end if %> crashed $5 3/4 to $21 today after posting earnings two cents lower than projected earnings. The stock was downgraded by Hambrecht & Quist from "buy" to "hold"... GIBRALTER STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROCK)") else Response.Write("(NASDAQ: ROCK)") end if %> shares were belted for $2 3/8 to $18 1/8 after the company offered additional shares in order to pay off debt. Investors are clearly concerned about dilution.
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Highlights from Bear Stearns
For the many who may not know, I had the pleasure of going to the Bear Stearns Technology conference held in New York on Tuesday and Wednesday. I thought I would spend some time here going through the highlights of the conference.
TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> was probably the best presentation done by a large manufacturing company. A flurry of charts showed the dynamic growth of the worldwide semiconductor manufacturing industry, the rapid expansion of semiconductor content in manufactured goods and the company's product mix.
Texas Instruments remains secure in the long-term growth picture for the semiconductor industry. Only 4% of manufactured goods had semiconductor content in the 1970s compared to more than 15% today -- up from only 10% at the beginning of the decade. About 27 out of 100 people in the United States own personal computers, compared to 12 in Europe, 10 in Japan and all of one in Asia. The numbers look even better when you look at cellular phones, with 12 out of 100 owning cellular phones in the United States, 4 in Europe, 4 in Japan and one in Asia.
Texas Instruments addressed falling prices for dynamic random access memory (DRAM), which has been plaguing the entire semiconductor industry. Unit prices fell between 30% to 50% in the first quarter and current rumors put the price of DRAM below $3 in the spot market -- less than it costs to manufacture. Texas Instruments is confident that this will remain a solid business in the long term, however, and has managed their risk in this regard by partnering with large DRAM users before they build fabrication plants.
Texas Instruments also concentrates in the digital signal processing (DSP) market, an industry with exceptional margins, fast growth and a solid future. Texas Instruments also has been providing mixed signal customer solutions, integrating their DSPs with analog functions. As well as having prestige amount manufactures, Texas Instruments also uses its own chips in its branded line of computing devices. The company has spent heavily on capacity expansion and research and development this year in the face of industry uncertainty, investing counter-cyclically -- a great way to take market share. The company's long term goal is to grow revenues by 20% and generate a 20% return on investment.
I attended the BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> presentation mainly to figure out why they did not buy PENRIL DATACOMM'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNRL)") else Response.Write("(NASDAQ: PNRL)") end if %> remote access business when they decided to buy their digital signal processing modem business earlier in the week. Bay believes that Penril's remote access server is lower-end business compared to Bay's remote access business. Bay wanted Penril's modems because their own remote access business used modems made by other manufacturers (original equipment manufacturers, or OEMs). This was "not enough in the high-density, high-port count world" where service providers want more and more connections into the network.
The leaders in this business, US Robotics and 3Com, both own their own digital modem technology. Bay Networks believed that if it owned its own DSP modem technology, which allows for easy user customization, they could get the jump on the non-modem-owning competitors. However, as they already had their own remote access business from the fairly recent Xylogics acquisition and given that the management at Penril did not want to give it away, they arranged for the spin-offs and the cross-licensing of the DSP modem technology to Access Beyond, the new Penril-birthed remote access player.
Robert Madge of MADGE NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MADGF)") else Response.Write("(NASDAQ: MADGF)") end if %> had the uncomfortable task of facing a horde of unhappy institutional investors. Madge outlined his company's technology strategy, focusing on their ATM migration. A leader in token ring and Ethernet local area network switching, Madge will now focus on providing ATM backbones and potentially ATM to the desktop for pioneers to provide end-to-end switched networks, completely removing routers and hubs from the equation.
Madge described the exact nature of the shortfall in his European operations, linking it to the Lannet Ethernet products. The company is seeing "softness" in the current quarter and will have a "significant" reduction of EPS. Because the quarter's revenues are end-weighted, with a lot of business booked in the last few days, they could not be more specific. The company had ambitious plans for sequential revenue growth and ramped up infrastructure to support this, assuming earnings would follow. However, the Lannet indirect sales distributors had slacked off on pushing Madge products when they discovered Madge was building its own direct-sales force, putting a crimp in revenue growth. Given the long lead times for networking equipment sales, the damage was already done when they discovered it.
The subsequent sequential decline in revenues on top of increased costs create what the company calls a "timing" problem, guaranteeing that this quarter will be terrible. Madge specified that all of the lost revenue was the Lannet Ethernet business, due to unmotivated indirect distributors as well as one U.K. reseller simply imploding. Visibility to the end of the quarter is low and the company is not able to "support any current earnings per share estimates". As a result, Madge is re-evaluating its transition to the direct sales channel and will pursue it on a case-by-case basis.
All of the current good news are 1997 items. Sales of desktop, workgroup and backbone ATM along with token ring and Ethernet switches should be a powerful business, as FORE Systems has proved. In fact, FORE recently made an Ethernet switch acquisition of its own, putting it and Madge on essentially equal footing with regard to end-to-end switched networks. If Madge can execute its ATM strategy, it can theoretically take a nice chunk of the absolutely-booming ATM market going forward, competing head to head with Cisco, FORE, 3Com and IBM.
US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> gave a pretty upbeat presentation, especially in comparison to Madge. They cast themselves as the "information access" company, trying to get away from the tired-old modem maker label that has followed the company. They want to create integrated platforms for communications and have a goal of "25 US Robotics products in every home". Integration across a broad range of functions and ease of use will drive their business.
Technology is getting easier to use and, yes Virginia, brands are beginning to emerge. With expanding R&D, a stable cost structure, end-to-end solutions and a leading share of consumer and network markets, they think their future is so bright they gotta wear shades. Their market share in the 28.8 modem market with the Sportster has been expanding rapidly, aided by the fact they have streamlined manufacturing to get product out into the sales channel -- bad news for competitors like Boca Research and Zoom Telephonics. US Robotics owns 55% of the intelligent hub market, 49% of the PC card market in North America and the lion's share of the 28.8 modem market as well, working on even faster technology now.
The company is looking for 41-42% gross margins, 14% sales and market costs, 5% general and administrative costs, 6% research and development costs, a 36.5% tax rate and 11% to 12% profit margins. Their sales are continuing to stay with the trend on a weekly basis and again, they continue to grow market share because of better channel inventory. US Robotics has doubled sales in each of the past three years and is well on its way to doing it again this year, having sold roughly as much last quarter in product as it did for the entire 1995 fiscal year.