HEROES

If it were posted online, it would be called hype, but when it's published in Business Week, it's called "Inside Wall Street." This week's edition posits that consumer goods company CARTER-WALLACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAR)") else Response.Write("(NYSE: CAR)") end if %> will be taken over for $24 per share, which drove the shares $4 higher to $18 1/8 today. An unnamed investment banker says a big British consumer goods company would like to acquire Carter-Wallace and that "price [isn't] an issue," insinuating that it is Unilever that is in on the deal. Carter-Wallace is currently being shopped by Marvin Davis, who has a $20 per share offer on the table, but the "whispers" referenced by Business Week claim that a large shareholder will only sign off on this supposed new deal. This sort of talk is exactly what intelligent people normally dismiss out of hand when it is discussed online.

Athletic shoes company CONVERSE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> gained another $2 1/4 to $20, capping off a great week in which the issue rose $6 5/8. The company today announced that it did place an anticipated convertible debt issue. The 7% note reflects the company's more stable financial condition and also comes at the right time in terms of the stock price underlying the issue. Had the stock gone nowhere this week and the conversion price been set 23% above the market price, the issue would have been more dilutive. If the deal had gone off when the stock was trading at $14 per share, the conversion feature would have called for the issuance of 4.64 million shares. Having done the deal last night and today with a conversion price of $21.83, the notes would convert into 3.66 million common shares.

LHS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSG)") else Response.Write("(Nasdaq: LHSG)") end if %> gained $3 1/4 to $19 1/4, up from its initial public offering (IPO) price of $16 per share. The company's software is used by telecommunications companies in billing and customer service applications. With approximately 25 million shares outstanding after the IPO, the company is valued at about 8.5 times 1996 revenues, and about 141 times 1996 earnings. Other IPOs on the week: RAMBUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMBS)") else Response.Write("(Nasdaq: RMBS)") end if %> finished at $31 3/4; AMAZON.COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> closed trading at $20 3/4, down sharply from its first trade on Thursday; and OCWEN ASSET INVESTMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OAIC)") else Response.Write("(Nasdaq: OAIC)") end if %>, a real estate investment trust intending to invest in mortgage-backed securities and distressed real estate, closed the week at $18 1/8, up $2 1/8 from the IPO price of $16.

QUICK TAKES: Apparel company DONNKENNY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DNKY)") else Response.Write("(Nasdaq: DNKY)") end if %>, which restated financial results earlier this year and lost the sponsorship of many of the analysts, shot up $1 5/16 to $4 3/8 on reporting Q1 revenues of $62 million and an unexpected profit of $0.07 per share... INFINIUM SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INFM)") else Response.Write("(Nasdaq: INFM)") end if %> moved up $1 5/8 to $8 1/8 after Robinson Humphrey put out a "short-term buy" rating on the enterprise management software concern... Remote access networking products company SBE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBEI)") else Response.Write("(Nasdaq: SBEI)") end if %> hooked up with a $1 1/4 gain to $7 1/4 after reporting Q2 revenues of $5.8 million and EPS of $0.15, beating estimates of $0.12... Broadband access products maker YURI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YURI)") else Response.Write("(Nasdaq: YURI)") end if %> climbed $2 1/8 to $14 1/8 after Business Week named the company its "Number One Hot Growth Company"... Enterprise software company MARCAM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAM)") else Response.Write("(Nasdaq: MCAM)") end if %> rose $1 3/4 to $12 after revealing in a federal filing that it has raised its revolving credit line by 67%, possibly obviating the need for a stock offering... Satellite communications company ORION NETWORK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSI)") else Response.Write("(Nasdaq: ONSI)") end if %> gained $1 1/4 to $11 3/4 after Morgan Stanley initiated coverage of the company with an "outperform" rating... VITECH AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VTCH)") else Response.Write("(Nasdaq: VTCH)") end if %> rose $1 1/2 to $14 1/8 after the Latin American PC distributor arranged a $50 million line of credit... NORTHEST UTILITIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NU)") else Response.Write("(NYSE: NU)") end if %> powered up $1 1/8 to $9 5/8 after receiving a $13.9 million tax refund from a township in Connecticut... INTERDIGITAL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IDC)") else Response.Write("(AMEX: IDC)") end if %> shot up $2 to $7 upon announcing a quarter-billion dollar contract to provide the nation of Myanmar with digital wireless telecom equipment.

GOATS

NETSCAPE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> had a rough go of it today, losing $5 5/16 to $29 1/4 after the company filed its 10-Q. Like other episodes of angst caused by 10-Q filings, management's discuss of results repeated what has been said by the company and analysts before -- that intranet software competition is rising and that Netscape spends a ton of its revenues on R&D and operating expenses to build for the future. To avoid some of the volatility that the company has seen, it may want to publish replays of its conference calls in the future. While Netscape understands the goals and rationale behind its programmed expenditures, the company may want to disseminate the information more widely to make sure investors also understand.

PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %> lost $3 7/8 to $17 1/4 as SoundView analyst Chandan Sarkar moved his clients out of the issue, citing pricing concerns brought about by competitors such as U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> and ASCEND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>. The concern is nothing new, though, as the company made comments about pricing at the Hambrecht & Quist Technology Conference earlier this month. The natural inclination for investors is to believe that the normal direction of prices is upward. Not so in the networking, PC, and semiconductor industries, where pricing normally drops at double-digit rates yearly. That's why new unit volume growth in such industries is measured in the high double- and triple-digit range. Demand, investors should remember, is a function of the utility AND the price of the product.

QUICK CUTS: U.S. DIAGNOSTIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USDL)") else Response.Write("(Nasdaq: USDL)") end if %> plunged $2 to $6 after the company was informed that it is not in compliance with Nasdaq listing requirements concerning net tangible assets... Database company INFORMIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFMX)") else Response.Write("(Nasdaq: IFMX)") end if %> slumped $1 5/16 to $10 1/16 after commenting in a regulatory filing that it needs to raise cash to support operations... MULTICANAL PARTICIPACOES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MPARY)") else Response.Write("(Nasdaq: MPARY)") end if %> was tuned out for a $1 3/4 loss to $12 13/16 after the Brazilian cable TV operator said there were delays in activating certain parts of its network... Circuit board manufacturer ALTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALRN)") else Response.Write("(Nasdaq: ALRN)") end if %> fell $2 to $16 3/4 after Advest cut its rating on the company to "accumulate" from "buy" and lowered its 1997 EPS estimate to $1.17... Local loop telephony equipment company ADTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADTN)") else Response.Write("(Nasdaq: ADTN)") end if %> slipped $3 1/2 to $28 1/2, possibly as a result of the weakness in Pairgain shares... PFEIFFER VACUUM TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PV)") else Response.Write("(NYSE: PV)") end if %> deflated $2 1/4 to $22 7/8 after the industrial equipment company reported an 8.1% decrease in Q1 earnings per share as expressed in Deutsche marks... U.S. SURGICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USS)") else Response.Write("(NYSE: USS)") end if %> dropped $2 1/2 to $30 1/2 after losing a decision in an intellectual property lawsuit with Applied Medical... LINENS 'N THINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIN)") else Response.Write("(NYSE: LIN)") end if %> declined $1 5/8 to $21 5/8 after CVS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %> elected to sell 5.25 million shares it holds in the company... Auto parts distributor PEP BOYS MANNY MOE & JACK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PBY)") else Response.Write("(NYSE: PBY)") end if %> fell $2 1/8 to $30 1/2 after reporting Q1 EPS of $0.37, below estimates of $0.39.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

HP, Welcome to the Dow

Slow sales growth continues to plague computer products and instrumentation giant HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>. In its first quarterly report since its elevation to the sacred circle of the Dow Jones Industrial Average, the Palo Alto, California-based company reported meager sales growth of 5% with new orders rising an even more tepid 3%. The company blamed a tough comparison with last year's strong quarter, unfavorable currency exchange rates, and slowing growth in a few key markets. The U.S. was the weakest region, with sales actually falling 2% due to weak orders for InkJet and LaserJet printers. Shares tumbled $6 1/8 to $52 3/4 on more than four times normal volume, while shares of pending acquisition VERIFONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VFI)") else Response.Write("(Nasdaq: VFI)") end if %> tumbled $6 1/2 to $51.

In spite of the company's proffered explanation, analysts were at a complete loss to explain why the company's sales growth was so abysmal. "I've never seen anything like this," stated one analyst, referring to the fact that printer growth was well below the growth in personal computers in the quarter. The confusion prompted a number of analysts, including Cowan & Co., Gruntal & Co., and Alex. Brown, to slash ratings and earnings estimates for the company. The slowing growth in the company's printer market combined with its inability to do anything to turn this around in spite of its 66% market share has many on Wall Street gravely concerned about Hewlett's ability to perform over the next six to twelve months.

Decelerating revenue growth has plagued Hewlett-Packard for the past year, with sales consistently coming in below the company's internal projections. The four quarters prior to today's release showed sales growth measured year-over-year of 33%, 17.7%, 12.1% and 10.8% consecutively, with the most recently reported quarter continuing a fairly negative trend. The 33% sales increase last year was one of the largest in the company's history, suggesting that some of the complaints about a tough comparison might be justified. However, the last four quarters in a row have been well below the company's five-year revenue compound annual growth rate of 21.2%, and it has become increasingly clear that Hewlett's overall rate of revenue is slowing down substantially from where it once was.

Hewlett-Packard's troubles began about a year ago when the company missed consensus earnings estimates for the fiscal second quarter of 1996 by 5.5%. The shares fell a split-adjusted $4 5/8 to $52 1/4 on concerns that falling gross margins could cut profit growth in the coming quarters. Profit growth was erratic as well, with Hewlett only making $0.40 EPS in 1996's third quarter due to unexpected sales weakness and a decline in gross margins. Many thought that Hewlett had turned things around when the fiscal first quarter was reported in February. The shares leapt $2 3/16 to $54 3/8 after the company walloped consensus estimates by 14.5% when analysts were looking for earnings to be flat. Widely viewed as the bottom for Hewlett, a number of analysts went out on a limb with positive recommendations -- recommendations that are now being pulled.

Some are now painting Hewlett as an aging electronics firm that has lost its way. The company's recent entry into personal computers stands as a lurid example of how today's Hewlett-Packard thinks very differently from the company that existed ten years ago. As the company views its principle asset as selling technological innovation, the reason it choose not to enter the personal computer market in the '80s was because it had nothing significantly new to offer. Although the company has added some nice gadgets to many of its high-end personal computers, many H-P purists are still scratching their heads over the decision by the company to manufacture PCs in spite of the fact that it was really doing nothing new purely to generate profit growth. Hewlett's Vectra line of personal computers, the most innovationless product the company has produced this decade, saw flat growth in the quarter due to price-cutting.

When you cannot package and sell innovation, you are reduced to competing on a price basis with other companies. While Hewlett's famous ethic, called the "H-P Way," was a testament to values, by focusing on innovation the company had the ancillary benefit of maintaining strong margins. The company's massive printer business is suffering from a lack of innovation as well, with fewer and fewer customers inspired to replace their already functional printers as they relentlessly upgrade their computer systems. Despite the company's talk of creating new product categories, such as all-in-one products or digital photography, if it cannot bring innovation back to the more mature parts of the business its revenue growth target of mid-teens to twenty percent will never be achieved. The only pockets of strength in last quarter were the Test and Measurement and Medical, Chemical Analysis and Components divisions, two places where the spirit of innovation still resides.

The company has improved its financial management over the last few quarters, delivering the first year-over-year increase in gross margins in a very long time. Operating expenses still grew faster than revenues, driving the company's operating margin down 0.2% in spite of the gains on the gross margin side. The company reduced inventories and accounts receivable as a percentage of gross margin, tying less money up in working capital. However, all of the focus on managing operating expenses and assets will not spark new revenue growth. Perhaps the recent merger with VeriFone as part of Hewlett's focus on the "Extended Enterprise" will be what brings this new wave of growth. Managing costs better on increasingly commoditized products will certainly not do the job.

CONFERENCE CALLS

HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(303) 446-5399 (reservation # 2554014) -- replay through 5/22

APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
(800) 642-1687 (code: 353749) -- replay

INTERNATIONAL RECTIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %>
(Re: Restructuring)
(800) 633-8284 (reservation # 2765732) -- replay

WHOLE FOODS MARKETS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %>
(800) 633-8284 (reservation # 2745722) -- replay available through 5/16

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
Replay available through 5/16
(800) 633-8284 (code: 2624093)

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>
(800) 633-8284 (code 2604899)

INFORMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFMX)") else Response.Write("(Nasdaq: IFMX)") end if %>
Available until 5/16
(800) 839-8790 -- replay

GENZYME CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>
(regarding contract with Cleveland Clinic to purchase Seprafilm)
(402) 220-6030

EDGE PETROLEUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPEX)") else Response.Write("(Nasdaq: EPEX)") end if %>
(402) 220-4831 -- replay available through 5/20

THIS WEEK'S CONFERENCE CALL SYNOPSES

US ROBOTICS<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> Q2Conference Call
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> Q3 Conference Call
ALLIED SIGNAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %> Q1 Conference Call
HMT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %> Q4 Conference Call
PEPSICO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> Q1 Conference Call
SOUTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> Q1 Conference Call
APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> Q2 Conference Call

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Randy Befumo (TMF Templr), a Fool
Fool Plate Special

Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

Brian Bauer (TMF Hoops), yet another Fool
Editing