The Evening News - Wednesday, March 12, 1997

HEROES

ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> rocketed $3 7/8 higher to $45 1/2 as enthusiasm builds over the release of its K-6 CPU, which is designed to be competitive with INTEL's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> MMX processor. A review from Tom's Hardware Guide (http://sysdoc.pair.com) published Dr. Thomas Pabst, a respected physicist and computer guru, did a heck of a lot to convince investors that Advanced Micro is about to make a serious challenge to Intel's CPU dominance. The original review of Intel's Pentium II, now on a German server to avoid the wrath of Intel, was brought to popular consciousness through an article in today's New York Times. After saying, in essence, that the AMD K-6 will operate faster with a standard socket, the author also says, "The future doesn't look too great for Intel this time. Intel is just trying too hard to make money." This morning, Prudential Securities raised its 12-month price target on for Advanced Micro to $90 from $40.

MARSH & MCLENNAN COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMC)") else Response.Write("(NYSE: MMC)") end if %> picked up a $6 7/8 gain to $128 7/8 after announcing a merger with Johnson & Higgins, once again making the company the largest insurance brokerage in the world. That title was recently taken by AON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOC)") else Response.Write("(NYSE: AOC)") end if %> in its merger with Alexander & Alexander. The combined company will be called J&H Marsh McLennan and will also operate risk management services and benefits consulting. M&M also adds its Putnam Investments subsidiary, with over $125 billion under management, to the combination. The company will benefit from obvious economies of scale and worldwide reach, as Johnson & Higgins brings its UNISON alliance in 62 countries around the world. Now, if Congress allows insurance companies to merge with securities brokerages and banks, we'll see some more interesting combinations.

OFFICEMAX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMX)") else Response.Write("(NYSE: OMX)") end if %> gained $1 1/2 to $14 3/4 after the office products superstore announced that it will purchase 63 STAPLES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLS)") else Response.Write("(Nasdaq: SPLS)") end if %> and OFFICE DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> stores for $109 million. The deal allows Office Max to enter a number of markets where the company has no presence or a limited presence. Currently, the company is capitalized at $3.1 million per store -- the average purchase price on these locations is roughly half of that. Staples and Office Depot are hoping that this divestiture will help convince the Federal Trade Commission that anti-competitive aspects of their proposed merger have been addressed.

QUICK TAKES: U.S. OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OFIS)") else Response.Write("(Nasdaq: OFIS)") end if %> picked up $2 to $27 3/4 after announcing 11 acquisitions with annualized revenues of $80 million... BLACK & DECKER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDK)") else Response.Write("(NYSE: BDK)") end if %> gained $2 3/8 to $33 3/8 on a Smith Barney rating upgrade to "buy" from "outperform"... TRANSACTION NETWORK SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNSI)") else Response.Write("(Nasdaq: TNSI)") end if %> rose $1 1/8 to $11 1/8 after introducing a secure data network for securities transactions... Machine vision systems company COGNEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGNX)") else Response.Write("(Nasdaq: CGNX)") end if %> rose $2 1/8 to $20 3/8 on an Alex. Brown upgrade to "buy" from "neutral"... WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> moved $6 1/4 higher to $64 1/2 as analysts commented on the stability of the disk drive industry, and shareholders voted for an increase in authorized shares, making room for a potential split... Natural gas distributor TPC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TPC)") else Response.Write("(NYSE: TPC)") end if %> gained $2 to $13 1/8 after agreeing to be acquired by electric utility PACIFICORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPW)") else Response.Write("(NYSE: PPW)") end if %> for $13.41 per share... CKE RESTAURANTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKR)") else Response.Write("(NYSE: CKR)") end if %> gained $1 7/8 to $21 3/4 after the Carl's Jr. franchisor and operator was featured in this morning's California edition of The Wall Street Journal saying that it won't engage in a price war with MCDONALD'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %>... Computer systems and network integrator NATIONAL DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NDC)") else Response.Write("(NYSE: NDC)") end if %> added $2 1/4 to $41 1/8 after reporting Q3 earnings per share (EPS) of $0.36, beating estimates by $0.02 per share... PAN AM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PAA)") else Response.Write("(AMEX: PAA)") end if %> gained $1 3/8 to $9 1/2 after the airline announced the commencement of service between New York and the Dominican Republic.

GOATS

Computer testing and educational services company SYLVAN LEARNING SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLVN)") else Response.Write("(Nasdaq: SLVN)") end if %> fell $5 1/4 to $29 7/8 after announcing a merger with NATIONAL EDUCATION CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEC)") else Response.Write("(NYSE: NEC)") end if %> in a stock swap valuing National Education at $20.37 per share. Sylvan stockholders weren't too happy with the combination, as National Education's track record of growth has been somewhat shaky compared to Sylvan. The acquisition greatly increases Sylvan's revenues and creates what the companies call a "life-long learning company."

SAFETY KLEEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SK)") else Response.Write("(NYSE: SK)") end if %> lost $3 to $15 3/8 after the industrial waste processing company pre-announced Q1 earnings of $0.20 per share, down from $0.23 a year ago and 20% below estimates of $0.24. The company said in its year-end earnings report that excess capacity in the lube oil business had led to lower average selling prices, which hurt its oil recovery business. While the company is diversified across a number of lines of business and is able to protect its position with established customer relationships, especially in lines such as its tool cleaning business, it is ultimately susceptible to increasing competition from the likes of the recent ALLWASTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALW)") else Response.Write("(NYSE: ALW)") end if %> - PHILIP ENVIRONMENTAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEV)") else Response.Write("(NYSE: PEV)") end if %> merger.

QUICK CUTS: Transaction processing services firm NATIONAL PROCESSING INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAP)") else Response.Write("(NYSE: NAP)") end if %> fell $1 3/4 to $8 3/4 after announcing it will miss earnings estimates for the quarter and the year by a "significant margin" due to unanticipated weakness in its Merchant Services division... CHECKPOINT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKP)") else Response.Write("(NYSE: CKP)") end if %> lost $3 to $20 after agreeing to merge with security surveillance equipment company ULTRAK INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ULTK)") else Response.Write("(Nasdaq: ULTK)") end if %> in a deal valuing each Ultrak share at 1.15 Checkpoint shares... Telephone triage company ACCESS HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACCS)") else Response.Write("(Nasdaq: ACCS)") end if %> toppled $7 1/8 to $15 3/8 on announcing its forecast of fiscal 1997 results $0.15 to $0.17 below First Call estimates of $0.92 due to lower-than-expected sales growth... ACCEPTANCE INSURANCE COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIF)") else Response.Write("(NYSE: AIF)") end if %> shed $2 1/2 to $20 3/8 on reporting Q4 net income of $0.36 per share (which was boosted by a one-time recognition of a tax loss asset), below estimates of $0.45... NOVEN PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVN)") else Response.Write("(Nasdaq: NOVN)") end if %> slid $2 7/16 to $8 9/16 after announcing that it expects to report a fourth quarter and fiscal year loss... CELLPRO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPRO)") else Response.Write("(Nasdaq: CPRO)") end if %> lost $1 5/8 to $6 1/2 after a jury ruled that the biotech company is liable for $2.3 million in damages for infringing on a patent owned by Johns Hopkins University and BECTON DICKINSON & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDX)") else Response.Write("(NYSE: BDX)") end if %>... LIFETIME HOAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCUT)") else Response.Write("(Nasdaq: LCUT)") end if %> lost $2 to $9 after the kitchenware products maker said Q1 earnings will fall by approximately 24%... 1997 and 1998 earnings estimate reductions from Morgan Stanley (due to a strong dollar) sent DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> $2 1/8 lower to $29 7/8... GENERAL SIGNAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GSX)") else Response.Write("(NYSE: GSX)") end if %> fell $3 1/4 to $40 3/8 after the industrial controls business announced that it expects to post Q1 EPS of $0.46 to $0.47, below estimates of $0.55, due to "lower revenue and order expectations and cost pressures"... Internet search engine LYCOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> lost $2 to $13 despite releasing a flurry of positive announcements... SCHNITZER STEEL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCHN)") else Response.Write("(Nasdaq: SCHN)") end if %> fell $3 to $27 after the steel scrap recycler and mill operator announced that it expects lower scrap prices and lower scrap export sales to hurt earnings... Medical device company ECLIPSE SURGICAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESTI)") else Response.Write("(Nasdaq: ESTI)") end if %> slid $2 to $6 after saying that it expects revenues and expenses to be hit by the recent ruling that Medicare will not cover certain procedures for which the company makes products.

FOOL ON THE HILL
An Investment Opinion by MF Templar

3COM/U.S. ROBOTICS, Part II -- Why U.S. Robotics?

[Yesterday, the Evening News discussed the perception of 3Com's current market position. Today, we examine the competitive position of the new 3Com in the remote access market.]

What are the potential benefits of 3COM'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> pending merger with U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>? This is the question that investors are confronted with as they try to evaluate the combined companies. U.S. Robotics is a household name in modulator-demodulators (modems), a computer communications device that readers of this online column have probably used once or twice in their lives. The company has pioneered the development of a number of computer connectivity technologies, including v.34 modems, integrated services digital network (ISDN) modems, and palmtop computer access devices like the Pilot. U.S. Robotics also has a remote access product called the TotalControl Hub, which is in the top two in the product category.

On the surface, the combined companies look pretty impressive. 3Com is number two in the networking world with a dominant market position in network adaptor cards, intelligent hubs and routers. U.S. Robotics has the leading market share in modems and a solid position in the remote access business. The combined firm will have trailing revenues of $5.1 billion, an operating margin of 18.75%, and $761.1 million of cash and equivalents in the bank. The management of both companies praised the combination, stating that the combined company would be better equipped to take on CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> in the enterprise networking world and ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> in the remote access universe.

Not everyone, however, believes that the merger is a guaranteed hit. With more than half of the new company's revenues concentrated in the volatile network adaptor card and modem markets, many are saying that the new 3Com has a product line full of commodity items, making the comparisons to Cisco Systems seem a little forced. The acquisition of U.S. Robotics gives 3Com absolutely no new products in the enterprise networking world, meaning that the only improvement for both companies comes in the form of a unified remote access strategy. With more than 80% of the router market compared to 3Com's miniscule position, Cisco Systems is viewed as a company immune to pricing pressures; whereas the new 3Com will have two major product categories under open assault from very hungry competitors.

Although the critics of the merger are pretty articulate, the many moving pieces make it difficult to size up the deal from either side. With U.S. Robotics under its belt, 3Com believes that it can own the edge of the network. While products like routers and switches are crucial to the functionality of the actual network, remote access devices are necessary to gain entry to the network from the outside. On various levels, Ascend, U.S. Robotics, SHIVA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %>, BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> via the Xylogics acquisition, CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %> and CABLETRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> are all pounding on each other for this market. The specific products that U.S. Robotics and Ascend make enable users to dial into Points of Presence (POPs) like those of America Online and Internet service providers (ISPs) in order to gain access to the network.

In the September quarter, Ascend introduced a product called the MAX TNT (The Next Thing), a carrier-class switch with a price-per-port that was much lower than U.S. Robotics' product. Although the actual sticker price of a MAX TNT is substantially higher than a TotalControl Hub, making the actual comparison a little skewed, Ascend proponents believe that it will clean Robot's clock in this arena with the new product. Most industry analysts agree that Ascend Communications has been taking substantial market share from U.S. Robotics, but it is difficult to nail down what the numbers actually are. U.S. Robotics does not disclose exactly how much of its total revenues are network systems sales, although it did say that TotalControl Hub sales were roughly $450 million. As Ascend's total revenues for 1996 were $550 million, some have used these numbers to imply that Ascend has gained market share.

These numbers may be distorted, however. Ascend's revenues include sales from its Pipeline product as well as prior generation MAX devices, and the MAX TNT and TotalControl Hub are not completely comparable -- in many ways this is like comparing sales of Ford Escorts to sales of Rolls Royce limousines. The critics are right to point out that U.S. Robotics lacks public development plan to catch up to the MAX TNT with its TotalControl product line, so it is wise to consider whether or not Ascend may eventually completely surpass U.S. Robotics. With the new 3Com having $761 million in cash in the bank, a combined budget of $400 million per year for research and development, and some definite networking prowess, this thinking may prove premature. The onus is on the new 3Com to come up with a new product to develop -- so this is in no way a slam-dunk.

TOMORROW: The strategic position of the new 3Com, and how past networking mergers have fared.

CONFERENCE CALLS

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
To Discuss Networked Multimedia Connection with
MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> and INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
(800) 683-1535
Available through 3/14

GENZYME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>, GENZYME TRANSGENICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GZTC)") else Response.Write("(Nasdaq: GZTC)") end if %>
(402) 220-4884 -- replay available through 3/12

GENZYME TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %>
Re: Carticel
(402) 220-4882 -- replay available through 3/14

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MORE FOOLISHNESS
A Foolish Library

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Randy Befumo (MF Templar), a Fool
Fool On the Hill

Dale Wettlaufer (MF Raleigh), another Fool
Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

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