Some are attributing the Nasdaq's big run-up today to Intel's estimate-beating earnings report last night. We've got a Special Section on Intel today, where you can bone up on the company before attending tonight's auditorium event with Jim Jarret, Intel's Vice President of Investor Relations. It will be held at 8 pm EDT in the Coliseum (keyword: coliseum). In addition, our Earnings Central collection is growing every day, as more companies report. We'll have conference call reports on Ford, Altera, Read-Rite, Computer Associates, Weyerhauser, and AMR Corp. Call after call, the Fool covers them all! (We try to, anyway.)
MF Merlin's Economic News today discusses the Bureau of the Census's June report on housing starts and building permits. 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. In tonight's Fool on the Hill, MF Templar focuses on the World Wide Web. Enjoy!
(One call is scheduled for today and the rest for tomorrow.)
07/17/96 (Wednesday)
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
1-800-839-3013 (passcode: 3276) -- replay (c. 9:20 am EDT)
07/18/96 (Thursday)
AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>
1-800-260-0712 -- live (8:30 am EDT)
1-800-475-6701 (code: 310625) -- replay (after 10am)
07/18/96 (Thursday)
CONTROL DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDAT)") else Response.Write("(NASDAQ: CDAT)") end if %>
1-402-220-1732 -- replay (c. noon EDT)
07/18/96 (Thursday)
RIDE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RIDE)") else Response.Write("(NASDAQ: RIDE)") end if %>
1-415-908-4755 -- live (4:30 p.m. EDT)
07/18/96 (Thursday)
SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %>
1-800-633-8284 (code: 1824275) -- replay (c. 5:30 pm EDT)
07/18/96 (Thursday)
IOMEGA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>
1-800-633-8284 (code: 1837381) -- replay (c. 6:30 pm EDT)
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> did not disappoint when it reported earnings this morning, beating consensus estimates of $0.28 EPS by four cents. The company will also be buying back 18.75 million shares of stock, making its total repurchase 75 million, or about 15% of the outstanding shares since 1992. After the earnings release, Cowen raised its fiscal 1997 estimates for Computer Associates to $2.50 from $2.47 per share, and said that it would raise its fiscal 1998 estimates shortly. Furman Selz was even more bullish, raising its fiscal 1997 estimates from $2.47 to $2.70, and its fiscal 1998 estimates from $2.80 to $3.25 per share. Shares of the software giant rose $6 to $46 1/2 in heavy trading.
Shares of NEW WORLD COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NWCG)") else Response.Write("(NASDAQ: NWCG)") end if %> jumped $6 3/16 to $21 3/8 after Rupert Murdoch's NEWS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> announced this morning that it was acquiring the Ron Perelman-controlled television firm. This deal now makes News Corp. the largest television broadcasting property in the country, reaching 40% of all homes. For its part, News Corp. saw its shares recede $1 3/8 to $20 5/8.
STRUCTURAL DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDRC)") else Response.Write("(NASDAQ: SDRC)") end if %> rocketed $3 9/16 to $20 1/2 today after the company reported second quarter net income of $0.22 per share, beating First Call consensus estimates by one penny. The $0.22 figure excludes a one-time $0.03 charge relating to the acquisition of CAMAX Manufacturing Technologies, completed in the second quarter. This report marks a 30% increase over same period last year. Not wanting to stop with just an estimate-beating report, the company also announced today that AlliedSignal Aerospace will be implementing the Structural Dynamics Metaphase Series 2 data management product throughout its engine business unit. AlliedSignal Aerospace is the world's largest supplier of aircraft systems and components.
QUICK TAKES: GEOWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GWRX)") else Response.Write("(NASDAQ: GWRX)") end if %> shot up $6 to $25 after the company reported a loss of $0.14 per share, which was in line with consensus expectations... Shares of battered Internet search engine INFOSEEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEEK)") else Response.Write("(NASDAQ: SEEK)") end if %> rebounded $2 to $7 3/4 today when Merrill Lynch initiated coverage with "near-term accumulate" and "long-term buy" ratings... SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> met earnings today, and shot up $2 3/8 to $19 1/8. Check out the details in the Fool's Spyglass Conference Call... ULTRAFEM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UFEM)") else Response.Write("(NASDAQ: UFEM)") end if %> was boosted $5 1/4 to $20 3/4 today after the company reported that its feminine protection products would be sold by major retailers across the country... FOXMEYER HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FOX)") else Response.Write("(NYSE: FOX)") end if %> shares rallied $1 1/2 to $7 1/2 after the company agreed to sell its CareStream Scrip Card operations to ShopKo Stores for $30.5 million.
MORE QUICK TAKES: KOHL'S CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KSS)") else Response.Write("(NYSE: KSS)") end if %> surged $2 7/8 to $32 after Smith Barney upgraded the retailer from "neutral" to "buy"... Shares of VERIFONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VFI)") else Response.Write("(NYSE: VFI)") end if %> rose $4 3/8 to $41 1/4 after the company reported second quarter results of $0.43 per share, in contrast to $0.36 per share in the year-ago period... C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUBE)") else Response.Write("(NASDAQ: CUBE)") end if %> met analyst projections for the second quarter, and rose $2 1/4 to $28 1/4. More details in the C-Cube Conference Call... HOME SHOPPING NETWORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HSN)") else Response.Write("(NYSE: HSN)") end if %> blew through consensus estimates today, reporting earnings of $0.05 EPS versus First Call consensus expectations of $0.01 EPS. The stock is up $1 1/2 to $11 5/8 ... MATTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> rose $2 1/2 to $24 5/8 after an independent accountant stated that the company's books were consistent with the Generally Agreed-Upon Account Practices, also known as GAAP.
Momentum investors abandoned networker PREMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRMS)") else Response.Write("(NASDAQ: PRMS)") end if %> when it only met consensus expectations of $0.19 EPS for the quarter, dropping shares $6 1/4 to $38 5/8. Perhaps it was something they said in their conference call? For the record, their earnings were up 174% from the year-ago period, when they earned $0.07. Revenues were up 114%. President and Chief Executive Officer (CEO) Raymond Lin noted that, "Fiscal 1996 was a great year for Premisys. Revenues more than doubled and earnings per share were 3.5 times that of the prior fiscal year. We added important distribution partners and began shipping new products in the areas of ISDN, frame relay, ATM and service interworking."
Also setting revenue records and meeting estimates (of $0.23 per share) was machine vision company COGNEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNX)") else Response.Write("(NASDAQ: CGNX)") end if %>, which slumped $1 5/8 to $12 7/8. Why? Well, the President and CEO Dr. Robert Shillman explained that, "The current slowdown in the semiconductor and electronics industries will make it difficult to sustain our current growth rate into the second half of the year. Due to these slowdowns and the uncertainty surrounding the short-term outlook for these industries, we anticipate our third quarter results will be somewhat below the results just reported for the second quarter."
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> is broadening the scope of its Digital Cities, announcing today that it is forming a new company to offer news and information services to regional markets via the Internet. Planning on taking a 20% stake in the new venture is TRIBUNE CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TRB/A)") else Response.Write("(AMEX: TRB/A)") end if %>. Were investors excited about this new announcement? Hardly. Shares slid $1 1/4 to $32 1/4. One might suspect the influence of COMPUSERVE'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> warning yesterday of slowing growth, but CompuServe shares were up $1 to $13 1/2.
QUICK CUTS: Footwear company BROWN GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BG)") else Response.Write("(NYSE: BG)") end if %> was trampled $1 1/2 to $13 1/2 today after Standard & Poor's announced that the company would be dropped from the S&P 500 Index... Shareholders of CITATION COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CITA)") else Response.Write("(NASDAQ: CITA)") end if %>, not excited by management's plan to issue 2.6 million more shares, pushed the stock down $1 1/4 to $14 1/4 in short order... AMTROL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMTL)") else Response.Write("(NASDAQ: AMTL)") end if %> reported flat earnings growth in the current quarter, coming up with only $0.49 EPS. The maker of flow and expansion control technology dropped $3 5/8 to $20 1/8... COMPUTER TELEPHONE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CPTL)") else Response.Write("(NASDAQ: CPTL)") end if %> met analyst estimates of $0.11 for its first quarter, but investors must have had much higher hopes, as they sent shares down $3 1/8 to $9 3/8... PHOENIX GOLD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PGLD)") else Response.Write("(NASDAQ: PGLD)") end if %> reported $0.05 for its third quarter, compared to $0.23 last year, and retreated $1 1/2 to $7 1/2 as a result.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Web Crush
The question is pretty straightforward -- will the World Wide Web crush proprietary online services? The conventional wisdom as measured by industry pundits and newspaper columnists is an emphatic "yes." As a Fool, I feel pretty comfortable on the other side of this exchange. Why? Despite the reams of paper devoted to this oft-debated topic, the question has received very little in the way of commentary informed by the actual economics of the whole deal. What are the implications of the World Wide Web's distributed, open architecture for connectivity and the viability of Web-based consumer businesses? These are the questions that have been buried under a torrent of media hype about how many people are tuning in to the Internet.
The Internet was designed to have a distributed, open architecture. Different servers can connect and disconnect from the Internet at will without causing the system to crash -- a stark contrast from a closed, private network, as anyone who has ever had a server go down can tell you. Instead of routing all traffic through one centralized server, on the Internet you hop from server to server in order to get the information you are looking for. This is why you have a worldwide network based completely on the address system. Each server has its own location and you simply dial it in from your starting point to go out there and reach it, traversing various servers on the way until you get where you want to be.
The distributed network is great when you want an open, worldwide system that anyone can plug into. The first drawback of this design is speed, however. Most of your connection time is spent hopping from server to server. Unlike a closed system, which can route you directly where you want to go using the shortest path, with the Internet you just have to go with the flow of traffic. It is this distributed architecture that creates the demand for high-speed Internet access. If the Internet were a closed, proprietary system, we would not all be sitting around talking about why the high-speed Holy Grail is necessary to make the thing move along at a decent clip. Instead, we would be talking about how we could tweak our closed, proprietary infrastructure and software to make things run faster at the current speeds.
Did I say high-speed access? This has been the quest of many Net-izens, desperate to get above anemic 28.8 baud modem speeds in order to access content in a timely fashion. Some industry wags have even suggested that it is the very fact that 28.8 is so slow that has made consumers absolutely demand flat-fee, unlimited Web access. Many believe that some kind of high-speed Internet access will alleviate this problem. This perception is absolute, stone-cold wrong.
High-speed access does not guarantee high-speed content. Each site contributes to the architecture of the entire Web, making the Web only as fast as the slowest server. Even if you are cruising on ISDN, if the server you are trying to access has too much traffic on it, you are going to sit, and sit, and sit, and sit. Ask any high-speed user who tried to access CNNfn's quote page while the Motley Fool had a pointer out to it during yesterday's stock-quoteless hours on America Online. The server got completely gummed up by the traffic and was unable to respond to all of the requests for information which were bombarding it. It did not *matter* how fast your access was -- you were in the end limited by the speed of the server.
The burden of building out the network to deliver content is being borne by the content providers. This is a marked difference from any other medium. Books, television, radio, newspapers -- all of these required concentrated capital to invest in expensive infrastructure that was eventually owned by the people who built it. It was these people with deep pockets that created the infrastructure for the content providers, allowing undercapitalized operations to get paid for delivering cool stuff. The lack of a viable economic model for content providers on the Web is the single biggest impediment to the Web's success as a mass medium, although it is the one fact that no one is talking about.
What do you mean content is a problem? There is plenty of free content, Fool. That is exactly the problem, however. The Web was designed to be a free, information-based medium. The people who designed it never imagined that it would one day become commercialized and that companies would try to make money off of it. For independent content providers to make the kind of money they need to make in order to buy the servers to keep up with their expanding needs, they either need to charge fees or achieve the critical mass in their viewership that will draw advertisers.
Given the preponderance of a la carte fees out on the Web today, I think it is pretty clear that this is a dead-end. Not very many people are able to successfully charge for general content. For specialized content that is optimized for the online environment, yes, people will pay. For general content that is more recreational in nature, however, most people are going to just say no to the a la carte system. They have already paid their Internet Service Provider -- thank you very much. So this leads us to the second possibility most of the industry pundits have been talking about -- advertising. Everyone knows that there is a huge online advertising market and that the Web is going to dominate this. Advertising, they cry, that is what will support the content providers.
Advertising presupposes one key thing, though -- a large, defined, measurable audience. This is what I mean by critical mass. A content provider needs to build a brand name in order to attract advertisers, the reason why Web sites based on media properties have garnered almost all of the Web-related advertising dollars to date. You already *know* ESPN and its kin -- you do not need to get familiar with its product before you advertise on it. To get to this critical mass you need centralized promotion. People need to know you are there and that your show is going on. When you sign onto the network, there has to be a way to figure out what is going on. This is why people have been so excited about the search engines -- they are the main means to do this on the Web. However, as there is no centralized owner of the Internet, there is no central player who has a vested interest in promoting your site. This is really different from television or radio, where they can simply broadcast a commercial for an upcoming show that everyone will hear. A Web site is totally out of luck. There is ultimately no centralized place everyone has to sign on to where you can promote your content; that is the whole point of a distributed network. Any centralized site would mean the network would shut down without it, violating the autonomous nature of Internet connections.
Even if you can fight against the odds, get lucky and achieve critical mass, your problems with advertisers have only just begun. Say that through good fortune you are a Fool and you have a brand name that advertisers want to be associated with. What do you do then? Promise advertisers a specific amount of hits? The caching of web pages on ISP servers makes hits a ridiculous way of keeping score. Caching is when an ISP loads up a specific Web page and then allows customers to access it from its own server -- not the content provider's server. This means that all of those hits don't get counted by the content provider but instead go to the ISP's server, leaving the content provider unable to track real usage. Although this might seem like a minor problem, it is not -- if you expect the content provider to survive off of advertising. Advertisers are pretty funny about being able to measure the success of their ads. If they cannot be guaranteed the yields they want, they will not put their money into the kitty.
Without critical mass through centralized promotion or the ability to measure usage in any uniform way, advertisers will remain wary of pumping a lot of money into the Web. Furthermore, consumers do not want a la carte charges for Web access -- they want simple, flat-fee systems. As a result, there is no viable economic model for content providers because the network was not designed to support them. A lot follows from this reality. If content providers cannot make money, they cannot build the infrastructure to support the open, distributed network. The lack of a viable model for content providers inevitably raises the question of the viability of the Web as a consumer medium. The problem will worsen in the coming months because now Internet companies are effectively cut off from public capital given the market's rough treatment of the stocks. It was this capital that allowed names like Yahoo! to get the servers they needed that advertising revenues of $1 million a year never would have provided.
The Web was just not designed to be a consumer service. It was intended as an open architecture for people to view information -- not interact. This is why truly interactive applications like chat or instant messages are so clunky in the Internet environment. They are just patches over an infrastructure that was never designed to support them. They will never function very smoothly, no matter how many upgrades your browser goes through -- the system was never meant to do what consumers are demanding. This is why when you look at customer satisfaction surveys for the Web, only one out of ten customers is really satisfied by the whole deal. Similar surveys done for the online services show much better results, as the proprietary online services have been *optimized* to support interactivity.
Everyone has assumed that because the Web has dominated information space that it is the ultimate consumer medium as well. Unable to differentiate between the two sets of space, many have written off the proprietary online services because of the price differential between them and the Web. Dominating free and specialized information space and dominating consumer space are fundamentally different tasks. For the Internet to become a commercial as well as an information and business medium, you need a lot more than high-speed access. You need a viable economic model for content providers and you need interactive technology that is compelling for the consumer -- both of which have yet to materialize.