HEROES
VOCALTEC COMMUNICATIONS LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VOCLF)") else Response.Write("(Nasdaq: VOCLF)") end if %> surged $4 1/4 to $19
7/8 after the Internet telephony software company announced that Europe's
largest telecom firm, DEUTSCHE TELEKOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DT)") else Response.Write("(NYSE: DT)") end if %>, will take a 20%
equity stake in the company. Terms of the deal weren't released other than
to announce the commitment to purchase 2.1 million VocalTec shares. Deutsche
Telekom has also committed to purchasing $30 million in VocalTec products
over the coming two years, which it will market to 1,000 customers wanting
to try out the capabilities of voice-over-Internet protocol software. This
is the second impressive deal VocalTec has put together this year -- earlier,
it made a deal with MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> to resell VocalTec's software
and perform product R&D.
Shares of Internet search engine company EXCITE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %>
jumped $5 1/32 to $22 17/32 after Alex. Brown upgraded the company from to
"strong buy" from "buy." In the ongoing analyst rating war, Alex. Brown seems
to have the upper hand, negating all of Excite's recent loss as a result
of Jonathan Cohen's (UBS Securities) "hold" rating placed on the company
last week. As the Internet browsing
experience gets more complex, Web search engine firms are transforming themselves
into "Web media" companies that act as aggregators and distillers of content.
Earnings power is extremely difficult to project for these companies (which
accounts for the conflicting ratings), because it depends upon constantly
evolving partnership and advertising relationships.
One area of expected (read: prayed for) growth to fuel computer sales is
multimedia technology. Central processing unit burdens that arise as a result
of multimedia intensive processing functions can be alleviated by offloading
the work onto highly specialized graphic subsystems, either on the motherboard
or on add-in graphics boards. Due to shortened product cycles and original
equipment manufacturers (OEM) unwillingness to expose themselves to "technology
risk," the OEMs are favoring 3D graphics technology available on add-in cards
from companies like DIAMOND MULTIMEDIA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIMD)") else Response.Write("(Nasdaq: DIMD)") end if %>. Diamond
Multimedia was up $1 3/8 to $11 1/4 today after announcing that MICRON
ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MUEI)") else Response.Write("(NYSE: MUEI)") end if %> computers with the company's graphics boards
received "Editor's Choice" awards in PC Magazine. In addition, Micron
has chosen Diamond's new 128-bit accelerated graphics port (AGP)-enabled
Viper, model V330, as the graphics solution for its new high-end consumer
PC, the Millennia XKU.
QUICK TAKES: The contract offshore oil and gas driller with the world's
largest fleet of semisubmersible rigs, DIAMOND OFFSHORE DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %>, ascended $4 3/4 to $55 7/8 after reporting that it signed an 18-month
contract extension with an affiliate of EXXON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %>... Among
other drillers, TRANSOCEAN OFFSHORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> was up $3 1/8 to $96
11/16, and FALCON DRILLING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> rose $1 5/8 to $32 1/2...
Independent energy company OCEAN ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OEI)") else Response.Write("(NYSE: OEI)") end if %> hit pay dirt,
rising $2 5/8 to $60 9/16 on the strength of an initial "buy" recommendation
from PaineWebber... Apartment real estate investment trust EVANS WITHYCOMBE
RESIDENTIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EWR)") else Response.Write("(NYSE: EWR)") end if %> gained $1 21/32 to $23 23/32 on announcing an
agreement to be acquired by EQUITY RESIDENTIAL PROPERTIES TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EQR)") else Response.Write("(NYSE: EQR)") end if %>, extending Equity's lead as the largest apartment properties REIT in
the country... EastGroup Properties Inc. said today it has taken a 21.1%
stake in the common stock of MERIDIAN POINT REALTY TRUST VIII <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MPH)") else Response.Write("(AMEX: MPH)") end if %>, boosting it $1 to $5 1/2. EastGroup is considering a tender offer for
or business combination with Meridian... MIZAR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIZR)") else Response.Write("(Nasdaq: MIZR)") end if %>,
a supplier of DSP-based products, jumped $1 1/8 to $5 1/4 on news that its
board has authorized the repurchase of up to an additional $1 million worth
of its common stock from "time to time."
TRANS LEASING INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLII)") else Response.Write("(Nasdaq: TLII)") end if %> gained $2 to $9 1/4 after
the medical equipment leasing company said it is selling out to GE Capital
Corp., a unit of GENERAL ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>. After paying off debt,
the company will pay a liquidating dividend of about $10 per share... Year
2000 remediation software company SEEC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEC)") else Response.Write("(Nasdaq: SEEC)") end if %> rose $2
1/2 to $24 1/2 after a company officer appeared on CNBC's Squawk Box...
SUBURBAN LODGES OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLAM)") else Response.Write("(Nasdaq: SLAM)") end if %> picked up $2 3/4 to $23
1/2 after the apartment-style extended stay motel/hotel company was started
with a "buy" rating by Raymond James... Consumer financial software company
INTUIT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> rose $3 15/16 to $28 after Montgomery
Securities initiated coverage with a "buy"... Optoelectronics company
UNIPHASE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UNPH)") else Response.Write("(NASDAQ: UNPH)") end if %> was boosted $8 3/16 to $69 7/16 on news
that it has agreed to invest in Indx, a leader in fiber optic reflection
filters for wavelength division multiplexing (WDM) applications.
GOATS
Specialty semiconductor company ALTERA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTR)") else Response.Write("(Nasdaq: ALTR)") end if %> was smashed
for a $9 loss to $52 3/8 today. The maker of field programmable gate array
(FPGA) and advanced read only memory (ROM) chips announced last night that
North American consumption of those products in the third quarter will be
below forecasts and that the company expects a sequential decline in revenues;
however, year-over-year growth in Q3 is expected to come in at 40%. XILINX
INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLNX)") else Response.Write("(Nasdaq: XLNX)") end if %>, Altera's main competitor, fell $2 11/16 to $48 5/16
in sympathy. Investors are focusing on what looks like a problem that is
not specific to Altera, although some think that Altera might be spinning
the announcement. Oppenheimer, for one, went with the industry-wide slowdown
hypothesis and cut 1998 earnings estimates on Xilinx from $2.33 per share
to $2.02.
Currency problems continue to roil Pacific Rim and Southeast Asian markets.
PHILIPPINE LONG DISTANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHI)") else Response.Write("(NYSE: PHI)") end if %> dropped $2 5/16 to $25 1/4, but
outperformed the larger Philippine stock market, which lost about 9.5% last
night. While the Indonesian stock market only dropped about 4.5% last night,
its telecom bellwether, PT TELEKOMUNIKASI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLK)") else Response.Write("(NYSE: TLK)") end if %>, lost $2 1/8
to $20 3/8. PERUSAHAAN PT INDOSAT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IIT)") else Response.Write("(NYSE: IIT)") end if %>, another Indonesian
telecom, also dropped $2 1/2 to $22. South Korean company POHANG IRON
& STEEL LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKX)") else Response.Write("(NYSE: PKX)") end if %> backslid $1 3/4 to $26 3/4 as regional
turbulence didn't spare these shares, which have had quite a strong year.
Across the Sea of Japan, the Tokyo stock exchange was about the only major
Asian bourse not shaken up overnight.
MOSAIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOSX)") else Response.Write("(Nasdaq: MOSX)") end if %> was shattered for a $5 loss to $9 after
the call center computer/telephony products company pre-announced Q3 EPS
of $0.10 to $0.16 on revenues of $30 million. The company said it also expects
to take a $0.05 per share charge for a restructuring of sales and support,
but didn't clarify if the EPS guidance includes that charge. Adding back
the charge to the EPS guidance, the company would still be missing the mean
EPS estimate of $0.29 by at least $0.08. Mosaix blamed weak sales through
its reseller channel and said that it completed fewer call center integration
projects, indicating an execution problem at the company. Lo and behold,
the company's CEO is heading out the door. Mosaix's damage control announcement
at midday that Baby Bell AMERITECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %> will work with
Mosaix as a call management system reseller didn't help out much.
QUICK CUTS: RMI TITANIUM CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTI)") else Response.Write("(NYSE: RTI)") end if %> melted down $5 3/16 to $22 3/8 after Lehman Brothers cut its rating on the titanium foundry company to "outperform" from "buy"... OREGON METALLURGICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OREM)") else Response.Write("(Nasdaq: OREM)") end if %>, a titanium service center operator, also fell $3 3/8 to $21 7/8... VANSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VST)") else Response.Write("(NYSE: VST)") end if %>, a business-to-business computer reseller and consultant, dropped $1 1/4 to $15 1/8 after reporting 1Q EPS of $0.15, versus estimates of $0.14... Chipmaker LSI LOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %> lost $1 5/8 to $31 5/16 after SoundView Financial cut its rating on the company to "hold" from "buy"... Eurand announced today that it has signed an exclusive development, license, and supply agreement with GLOBAL PHARMACEUTICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLPC)") else Response.Write("(Nasdaq: GLPC)") end if %> to develop a gastro-protected pancrelipase product in several dosage strengths. Global apparently got the short end of the deal, falling $5/8 to $5 1/2... CERPROBE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRPB)") else Response.Write("(Nasdaq: CRPB)") end if %>, maker of high-performance probing and interface products used to test integrated and hybrid circuits, was slammed $1 1/4 to $20 after filing for a secondary offering... Enterprise software company BAAN CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> dropped $5 3/16 to $57 9/16 after announcing that it will acquire ALX-COMET, a business unit of Siemens Nixdorf... Advest Inc. today cut its rating on the shares of ACTION PERFORMANCE COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTN)") else Response.Write("(Nasdaq: ACTN)") end if %> to "accumulate" from "buy" based on valuation, moving the motorsports collectibles company down $3 1/16 to $33 1/16... INTERMEDIA COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICIX)") else Response.Write("(Nasdaq: ICIX)") end if %> lost $1/8 to $34 and WINSTAR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCII)") else Response.Write("(Nasdaq: WCII)") end if %> dropped $1 to $16 3/4 as the interexchange and competitive local exchange carriers were cut by Morgan Stanley to "outperform" from "strong buy."
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
The Descent of Ascend
Uncertainty about when a 56 kilobit-per-second modem standard will be finalized
combined with weak sales in the month of July has sent shares of ASCEND
COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> into a tailspin. Although the nominal cause
of today's $2 1/2 decline to $41 3/8 is an about-face on the part of a Merrill
Lynch analyst, the news is another regurgitation of the concern about July
sales first seen when Ascend published its
8-K
filing. With Monday's Network World
revealing that the basic intellectual property for 56K modems may actually
be in the hands of a foreign national and not any of the companies currently
involved in the standards setting process, there is even more concern now
that Ascend's sales over the next few months could be slower than expected.
Ascend revealed on August 11 that "[f]or the 31-day period ended July 31,
1997, Ascend Communications, Inc., a Delaware corporation, had consolidated
net income of approximately $2.9 million and consolidated sales of approximately
$62.8 million." With Ascend having 188.4 million shares outstanding as of
its last
quarterly
filing, this implies that Ascend only made one and a half cents per share
in the first month of the third quarter, leaving thirty-three and a half
cents per share to go if it is going to meet current analyst earnings estimates.
Although Ascend's quarters are typically "back-end loaded," meaning that
it does most of its business in the final weeks of the quarter, investors
have been increasingly unwilling to tolerate any uncertainity from
networking-related companies after the entire group got mashed last April.
Investors may be right to worry. With Ascend's net sales for the second quarter
at $311.7 million, the company's July sales only approximate 20% of last
quarter's earnings. To match expectations of sequential sales growth, the
company will have to more than double July sales in August and September.
Ascend has historically done a huge hunk of business in the closing days
of the quarter, but it has not done so with business at the company's new
Cascade unit in the dumper and the continuing squabble over 56K technology.
Monday's Network World bombshell indicating a 56K standard may take
more than a year to materialize only further erodes confidence.
While there has been a mass proliferation of wide-area network (WAN) technology
to allow for remote access and expand the public network called the Internet,
many providers have been waiting for the international standards committee
to come up with one 56K standard before fully deploying the technology. However,
a relative unknown in technology circles named Brent Townshend now claims
to have a broad patent filing on basic 56K pulse code modulation modem
technology. A committee member for Inter-national Telecommunication Union
(ITU) has contacted Townshend and reported that he seems open to licensing
his patent, but the modem-gear manufacturers may prefer to take this to court
rather than paying what could be hundreds of millions of dollars in royalties
based on the patent.
Originally the ITU had planned on formalizing the modem standard in September,
the last step before it would be finalized in January. With one formal standard,
many companies reliant on wide-area technology would have felt comfortable
buying either Ascend or U.S. Robotics/3Com remote access gear knowing that
it would all be interoperable. Now those same people are expressing some
concern over mass deployment of one standard when the standard could change,
leaving Ascend in a bind because of its decision to license the Rockwell/Lucent
56K technology over the U.S. Robotics/3Com technology. Even if Townshend
agrees to license his patent, it is unlikely that the major modem manufacturers
will let the patent stand without a fight. Les Brown, chairman of the ITU
committee, still hopes a 56K modem standard agreement can be reached next
month, but investors are discounting shares of Ascend as they perceive that
the inherent risk as rising.
With $311.7 million in sales last quarter, Ascend's annualized revenues are
approximately $1.3 billion. With the stock currently at $41 3/8, the company
is capitalized at $7.8 billion less $562.1 million worth of cash on the balance
sheet, or 5.8 times annualized revenues. The company is trading at 33.4 times
its annualized earnings from last quarter (netting out charges for the merger
with Cascade Communications), but the valuation really only holds up if Ascend
can generate the kind of growth that its current earnings estimates call
for.
As it stands, Ascend will only increase earnings by 16% to $0.36 per share
if it makes its quarterly estimates, although this would also be a 16% sequential
improvement (including the weak Cascade results). This is certainly possible
if Cascade's business has improved as advertised, but if the standards shuffle
puts any pressure on sales, the company could easily fall a few pennies short
of the estimate and see its P/E multiple continue to shrink. Even trading
in the low $40s, the shares require a time horizon of longer than a year
and a tolerance for volatility.
CONFERENCE CALLS
METROWERKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTWKF)") else Response.Write("(Nasdaq: MTWKF)") end if %>
(402) 220-4219 -- replay from 8:00 pm EDT for 24 hours
09/03/97 (Wednesday)
ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %>
(800) 633-8284 (code: 3030112) -- replay from 7:00 pm EDT for 24 hours
WE
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Alex Schay (TMFNexus6), Fool Two
Dale Wettlaufer (TMF Ralegh), Fool
Three
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Brian Bauer (TMF Hoops), another
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Julia Wilson (TMF Delete), Fool, oh
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