HEROES

Medical products company BIOMATRIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BIOX)") else Response.Write("(Nasdaq: BIOX)") end if %> zoomed $2 higher to $13 1/4 after the company announced that it has cracked the Promised Land of export markets: China. The Chinese government gave the go-ahead for the company to market its Synvisc treatment for osteoarthritis of the knee. The treatment is a prosthetic fluid that is injected into the knee joint. This product was approved for marketing in the U.S. by the FDA last year. Biomatrix also markets a product called Hylaform, a gel used to treat facial wrinkles and scars. Its partner on that project is COLLAGEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGEN)") else Response.Write("(Nasdaq: CGEN)") end if %>, a biomedical firm specializing in tissue treatments.

Specialty semiconductor company DALLAS SEMICONDUCTOR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DS)") else Response.Write("(NYSE: DS)") end if %> drove $5 7/8 higher to $32 1/2 after reporting Q1 revenues of $89 million and earnings per share (EPS) of $0.50, which smashed the mean estimate of $0.38. While specialized chip companies such as Xilinx and Altera have reported year-over-year declines in revenues because of price weakness, Dallas showed an impressive 10.3% year-over-year advance in revenues. By developing chips that replace bar code labeling and that are used for PC network user authorization, the company has been able to maintain product differentiation. This showed up in its operating margin (income as a percentage of revenues before interest expense, investment income, taxes, and minority interests) of 23%.

QUICK TAKES: TELE-COMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMB)") else Response.Write("(Nasdaq: TCOMB)") end if %> moved up $1 to $11 3/4 after USA Today said NEWS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> is rethinking its merger with Direct Broadcast Satellite company ECHOSTAR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DISH)") else Response.Write("(Nasdaq: DISH)") end if %>, which responded to the story with a terse denial... Construction materials store FASTENAL CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FAST)") else Response.Write("(Nasdaq: FAST)") end if %> rose $2 5/8 to $35 on reporting Q1 earnings per share (EPS) of $0.23, just below the estimate of $0.24 per share... APL LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APL)") else Response.Write("(NYSE: APL)") end if %>, formerly American President Lines, gained $1 1/2 to $21 1/2 as the U.S. and Japan may close on a shipping agreement this weekend... Software design and consulting firm KEANE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KEA)") else Response.Write("(AMEX: KEA)") end if %> surged $5 1/2 to $36 1/4 after reporting Q1 EPS of $0.29, beating the average estimate of $0.22 and winning an upgrade to "buy" from Alex. Brown.

GOATS

In an environment of excellent sales reports for retailers (party due to easy year-over-year comparisons due to last year's harsh weather), LOEHMANN'S INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LOEH)") else Response.Write("(Nasdaq: LOEH)") end if %> had a harsh day in losing $2 1/2 to $8 3/8. The women's clothing retailer pre-announced Q1 sales of $116 to $118 million and EPS of $0.14 to $0.20, which will fall short of the mean analysts' estimate of $0.32. Furthermore, fiscal year-to-date same-store sales have decreased 2.8%. The stock is down about 64% from the close of its first day of trading as a public company last May, doing about as well as DONNA KARAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %>, another fashion name that came public around the same time whose products Loehmann's markets.

DELGRATIA MINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELGF)") else Response.Write("(Nasdaq: DELGF)") end if %> was crushed for a $8 loss to $8 after the Canadian mining company's shares reopened trading on the Nasdaq and the Toronto Stock Exchange after a three-week halt. The company says its shares have been attacked in a bear-raid, and its coming earnings report will show investors the quality of the company. When trading was halted the day after the shares on the Nasdaq dropped $17 5/8, the company said it was "premature to quantify the potential" of its Nevada mining properties. Independent mining consultants have said Delgratia's assay is in accordance with standard procedures. That doesn't mean the shares were correctly priced at the time of the drop, though. Some mining analysts believe today's fall was due to liquidation from shareholders who went down in the BRE-X MINERALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BXMNF)") else Response.Write("(Nasdaq: BXMNF)") end if %> fiasco.

Remote access equipment company ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> ticked down $2 11/16 to $43 11/16 after reporting Q1 EPS of $0.36 (before acquisition charges), beating estimates of $0.33 per share. The company finished the quarter with an accounts receivable days-sales-outstanding of 52, down from 53 days last quarter. Gross margin of 66% and operating margin of 35% showed little change from last quarter. Year-over-year, operating margin increased by four percentage points through control of general & administrative costs and sales & marketing expenses. Looking at the company's numbers together with those of merger partner CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %>, which also reported earnings today, the merged Ascend is selling at 37 times trailing operating earnings of $1.18 per share, 8.4 times revenues, and 29 to 31 times 1997 EPS estimates.

Biopharmaceutical company BIOGEN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BGEN)") else Response.Write("(Nasdaq: BGEN)") end if %> was lost $5 7/8 to $32 7/8 after reporting Q1 EPS of $0.22 on revenues of $99.7 million. Cowen & Co. downgraded the shares because they believe the growth in sales for the company's main drug, Avonex, is slowing. This quarter, Avonex sales accounted for $52.6 million of the total quarterly revenues of $94.8 million (backing out interest revenues). Cowen's analyst lowered that firm's 1997 revenue estimate to $265 million from $290 million, but projected 70% revenue growth for the ensuing year. Biogen is now selling at 15 times the mean FY 1998 EPS estimate.

QUICK CUTS: Early marketing-stage toothpaste company ENAMELON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENML)") else Response.Write("(Nasdaq: ENML)") end if %> lost $3 1/2 to $19 after appearing on the short-sale list of "one money pro" in the current Business Week... ESS TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESST)") else Response.Write("(Nasdaq: ESST)") end if %> lost $4 1/16 to $23, curiously on the day after digital video chip company and prime competitor C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CUBE)") else Response.Write("(Nasdaq: CUBE)") end if %> reported earnings... Medical device company BOSTON SCIENTIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> was taken down $14 3/8 to $46 1/8 after the company said dollar strength will hurt revenues this quarter and that the company will miss the earnings estimate by a significant margin... Disk drive head maker READ-RITE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> lost $2 15/16 to $28 3/4 and competitor APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> fell $2 1/4 to $31 3/4 on weakness in the shares of disk drive companies (see tonight's Fool on the Hill)... FIRST USA PAYMENTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTI)") else Response.Write("(NYSE: PTI)") end if %> fell another $1 5/8 to $21 7/8 after Dow Jones said yesterday that credit card transaction processing giant FIRST DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> has an exclusive agreement to process all Visa, Mastercard, and private label credit card transactions for the merged FIRST USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FUS)") else Response.Write("(NYSE: FUS)") end if %> and BANC ONE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>... Hospital company TENET HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THC)") else Response.Write("(NYSE: THC)") end if %> slid $1 3/4 to $24 after shareholders registered over six million common shares for sale... INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> fell $6 3/4 to $130 1/2 as investors fear that the company will institute larger-than-usual price cuts to shut down competitors with low-priced Pentium clones. ... Printer server software and hardware company ELECTRONICS FOR IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EFII)") else Response.Write("(Nasdaq: EFII)") end if %> shed $3 3/8 to $38 3/8 after reporting Q1 EPS of $0.37, beating estimates by a penny per share.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Cyclical or Value Companies?

Strong results from disk drive manufacturer WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> last night were greeted with mixed emotions this morning. Shares of the most dynamic technology turnaround in recent memory were down $3 3/8 to $62 1/2 in spite of the fact that the company blew through consensus estimates of $1.45 EPS for the third quarter by posting a record $1.76 EPS. Remembering the drive industry of the past, Wall Street is becoming increasingly concerned that boom times for storage technology could mean a return to the historically brutal price competition.

Only a few years ago dozens of drive makers engaged in the battle for supremacy, but evolution and capital needs have winnowed the list down to a few names here in the late '90s. SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %>, QUANTUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> and Western Digital are the three largest independent drive makers in the world, controlling 67% of the drive business at the end of 1996. They compete with "captive" units -- drives built by the likes of IBM, Hitachi and Fujitsu for use in their own computer products, thus the term captive. The revenues of the Big Three are split between hard drives for desktop personal computers and hard drives for "enterprise" machines -- mainly workstations, local area network (LAN) servers and multiuser systems.

Historically when the drive business was populated by dozens of companies, competitors slashed margins to the bone in order to get market share. The theory was that with market share would come economies of scale, meaning that the majority of the profitability would be deferred until a future time. All this strategy really achieved was to squeeze many of the weaker players out of the business entirely, allowing the top few names to control the majority of the drive output. In 1989, 59 companies made hard drives. In 1996, only 12 companies made hard drives with Seagate, Quantum, Western Digital and IBM accounting for 78% of this output. With the stability that has come from having a few large, strong behemoths roiling around in the muck, the profits have begun to pour in as many have made tacit agreements not to try to bury one another in a price war.

How can investors infer that an all-out price war is not likely? Simply look at the profitability goals that these companies have set for themselves. "It looks to us like 22% to 24% is probably where we should be looking at for gross margins, not the old 20% to 22% that I've talked about in the past for drives," said Al Shugart, Chairman and Chief Executive Officer (CEO) of Seagate, on Wednesday's conference call. Western Digital is singing the same tune, having set the hurdle for its return on invested capital to be in the 35% to 40% range. (It did 43% in the recently completed quarter.) With Western Digital and Seagate both focused on gross margins and return on invested capital, they cannot indulge in price-based competition and still meet their internal profitability goals.

So why are Western Digital and Seagate down today? In Wednesday's conference call, Seagate commented on competition in the high-end drives -- the platters that go into servers, workstations and other souped-up computational machines. Fearing a return to the status quo, value investors who purchased these stocks at their lows a year and 200% ago are looking to take some profits. While well into turnaround mode, Quantum remains a wild card in the industry, as it has yet to definitely commit to ensuring shareholder return over market share. Add to this the lack of a Japanese aversion to losing money, and Hitachi and Fujitsu become concerns as well. Sequential revenue growth flattening out might confirm that there was some price competition, with Seagate up only 4.1% quarter-over-quarter and Western down 2.1%.

How much price competition could there be and how much could it affect earnings? Before last evening's blow-out performance, earnings estimates for Western Digital for next year were $6.82 per share. Given the company's $1.76 EPS this quarter with some price competition, the current quarterly run-rate would put it at $7.04 per share. Although theoretically some more price competition could creep in, investors need to ask whether or not the ongoing stock repurchases could more than offset this. In the third quarter, Western Digital spent $51 million to repurchase 850,000 shares, or 1.7% of the outstanding shares. As its board recently authorized the repurchase of another 5 million shares, it appears that this rate seems pretty secure.

With about 1.7% of the float currently disappearing each a quarter, the company will have more than 7% less stock next year at this time if management can keep up the same repurchase rate. Another way to look at the feasibility of this is to compare the amount repurchased with Western's income for the quarter, a variation of the "payout" ratio many analysts use to estimate the feasibility of maintaining the dividend. Western spent about 62% of this quarter's income buying back stock, a payout ratio that is not unreasonable. What does Western say about this? According to Bob Blair of Western Digital's Investor Relations department, the company's goals are to: (1) invest in the basic business, (2) invest in storage businesses that can return 35% to 40% on invested capital, and (3) repurchase stock with the remaining cash.

Additionally, concerns about the high-end drive business might be a little overdone in Western's case. Western Digital only started an enterprise storage unit recently -- its core business is still weighted heavily towards the desktop market. The problems that Seagate is seeing on the high-end could have less effect on Western than many believe. With personal computer volumes growing at approximately 15% to 18% per year, continued year-over-year revenue growth in this segment seems to be a lock-in unless there is greater than anticipated price competition in the desktop space -- something no one is talking about. Historically, replacement drives make up for price erosion in the new drive business, allowing the companies to post annual revenue gains of 15% to 20%.

Western Digital shares currently trade at nine times forward earnings estimates that appear low given the recent quarterly performance. Low profit margins make it difficult to see the company trading above the 15 times forward earnings that Intel Corp. currently garners, but seeing the company go to 11 to 12 times next year's numbers -- about 25% to 30% above today's levels -- would not be unthinkable. The shares trade at a discount to their future earnings because the conventional wisdom maintains that a price war will make those numbers unattainable. Investors need to decide if this is accurate and a replay of the semiconductor equipment debacle in late 1995 is imminent, or if this time truly may be different.

CONFERENCE CALLS

CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %>
(800) 938-0941 (code: 319193) -- replay through midnight 4/15

ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
(800) 475-6701 (code: 336995) -- replay through 4/18 (North America)
(320) 365-3844 (code: 336995) -- replay through 4/18 (International)

TENET HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THC)") else Response.Write("(Nasdaq: THC)") end if %>
(402) 220-1007 -- replay from 3:00 PM EDT on 4/10

COGNOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
11:15 a.m. EDT
(800) 997-6906 -- replay available until midnight 4/11

SALLIE MAE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %>
(800) 844-8633 (passcode 2334)
Replays at 5:00 PM ET on 4/10, 11:00 AM ET on 4/11,
and 11:00 AM ET on 4/14

04/14/97 (Monday)
INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
(402) 280-9021 -- replay through 4/18

THIS WEEK'S CONFERENCE CALL SYNOPSES

CUTTER & BUCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBUK)") else Response.Write("(Nasdaq: CBUK)") end if %> Q3 Conference Call
WILLIAMS-SONOMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSGC)") else Response.Write("(Nasdaq: WSGC)") end if %> Q4 Conference Call
ST. JOHN KNITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> Q1 Conference Call
ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> Q4 Conference Call
SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> Q3 Conference Call

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