HEROES

AMERISOURCE HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAS)") else Response.Write("(NYSE: AAS)") end if %> jumped $6 9/16 to $60 1/4 after the wholesale and retail drug distributor announced an agreement to merge with top industry player MCKESSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %>. McKesson will issue 17.4 million shares for AmeriSource, valuing that company at $1.74 billion. The transaction adds 3,300 retail outlets to McKesson's total of 5,900, although McKesson will probably look to eliminate overlap in order to achieve its projected $120 million in annual cost savings. McKesson says the savings will create an additional $1.00 per share of earnings, bumping up projected earnings for McKesson to $5.35 per share for fiscal 1999. That brings its forward P/E of 23 as of last night down to 19.3 today, suggesting that McKesson's stock price could get to $123 in a relatively short time if the company can demonstrate the solidity of its restructuring plan to investors.

Computer retailer, service center, and customer computer assembler COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> gained $2 1/2 to $35 3/8 on announcing a share buyback authorization of up to $60 million. While that equals only a small fraction of CompUSA shares, it does signal the board's confidence that this is the best use of cash. Or, in the case of a debt-financed buyback, that its shares are undervalued relative to the debt financing costs it would take to buy the shares. Outside of good indications on corporate demand and channel clearing from corporate customers, both of which are obviously good for the company, today's $60 million share buyback announcement has already boosted CompUSA's market cap by $216 million. That's money well spent, or authorized to be spent.

QUICK TAKES: CIBER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBR)") else Response.Write("(NYSE: CBR)") end if %> gained $2 3/8 to $46 1/8 after announcing a year 2000 remediation agreement with the Space and Systems Technology Group at MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>... Investment bank, brokerage, and money manager SALOMON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SB)") else Response.Write("(NYSE: SB)") end if %> rose $4 7/16 to $71 1/2 as the company was the subject of takeover rumors involving TRAVELERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>... Footwear and athletic apparel company FILA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> drove $1 7/16 higher to $29 13/16 after reportedly signing Detroit Pistons forward Grant Hill to another endorsement contract, this one for seven years and $80 million... Network marketing long-distance company EXCEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> was raised to "buy" from "attractive" by Bear Stearns, boosting the shares $2 1/8 to $24 15/16... MDU RESOURCE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDU)") else Response.Write("(NYSE: MDU)") end if %> picked up $1 1/4 to $25 3/4 after Duff & Phelps Credit Rating Co. assigned an "A" rating to the company's first mortgage bonds.

SEMITOOL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTL)") else Response.Write("(Nasdaq: SMTL)") end if %> gained another $2 9/16 to $26 7/8 after vaulting yesterday on news from IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> about a semiconductor fabrication process breakthrough, which investors believe will increase demand for Semitool's process equipment... Marketing company SNYDER COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNC)") else Response.Write("(NYSE: SNC)") end if %> rose $1 7/16 to $28 on signing an agreement with PROCTER & GAMBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> and after Bear Stearns started coverage of the company with a "buy" rating... Electronic hardware distributor QUESTRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QUST)") else Response.Write("(Nasdaq: QUST)") end if %> jumped $1 1/4 to $7 7/8 after announcing that it has completed its acquisition of California Fasteners Inc., a distributor of fasteners and related items... ACCESS BEYOND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACCB)") else Response.Write("(Nasdaq: ACCB)") end if %> gained $1 1/4 to $7 1/4 after Hayes Microcomputer, with which Access Beyond is merging, announced the resignation of its CEO... Dentistry practice management company COAST DENTAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDEN)") else Response.Write("(Nasdaq: CDEN)") end if %> jumped $4 3/4 to $28 1/2 after snapping off a successful secondary offering of two million shares (80% of which were sold by the company) at $23 3/4 per share.

Satellite-based communications company AMERICAN MOBILE SATELLITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SKYC)") else Response.Write("(Nasdaq: SKYC)") end if %> launched $1 3/8 higher to $9 after coverage was initiated by Unterburg Harris with a "buy" rating... APPLIED MICROSYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APMC)") else Response.Write("(Nasdaq: APMC)") end if %> moved up $1 1/2 to $11 1/2 after the designer of embedded software said yesterday that it has signed a software testing deal with embedded systems company WIND RIVER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WIND)") else Response.Write("(Nasdaq: WIND)") end if %>, which prompted a Hambrecht & Quist rating upgrade to "buy" from "hold"... Flash memory manufacturer SANDISK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDK)") else Response.Write("(Nasdaq: SNDK)") end if %> rose $4 1/8 to $34 1/8 after Casio said it will market Sandisk's 2 megabyte through 15 megabyte flash cards with its QV-700 digital cameras... South Carolina bank and mortgage lending company PALFED INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PALM)") else Response.Write("(Nasdaq: PALM)") end if %> levitated $2 7/8 to $24 3/8 on agreeing to merge with REGIONS FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RGBK)") else Response.Write("(Nasdaq: RGBK)") end if %> in a stock swap originally valuing Palfed at $27 3/8 per share... AFFYMETRIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFFX)") else Response.Write("(Nasdaq: AFFX)") end if %>, a maker of semiconductors used in genetic research and diagnostics, gained $5 3/8 to $46 3/4 after Robertson Stephens initiated coverage of the company with a "buy" rating.

GOATS

Producer of dynamic random access memory chips MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> got crunched $3 7/16 to $37 1/16 after announcing that it earned $0.33 a share in the fourth quarter, falling below the Zack's consensus forecast of $0.49 per share. This performance in the fourth quarter leaves Micron $0.20 shy of 1997 fiscal year estimates of $1.23 per share. With $2.74 per share projected for 1998, the annual growth expectations for next year come in at an unattainable 123%. Micron is now trading at 35x trailing and 13x forward estimates that are certain to come down over the next couple of days. Today, in fact, analyst gooroo Tom Kurlak from Merrill Lynch cut his 1998 estimates on the company to "a range of $1.20 to $1.40 per share" from his previous estimate of $2.75 a share. The company said the earnings shortfall was due to chip-assembly problems and declines in chip prices that outpaced the company's ability to cut operating costs. Or, as one prominent analyst here at FoolHQ likes to say, "They are price takers, not price makers."

Earnings guidance slammed a number of companies today. Citing lower giftware sales and a charge to downsize operations, STANHOME INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STH)") else Response.Write("(NYSE: STH)") end if %> was demolished for a $3 9/16 loss to $30 3/16 on saying that it expects to report a net loss for the third quarter. In other earnings guidance, LAN and WAN doctors WANDEL & GOLTERMANN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WGTI)") else Response.Write("(Nasdaq: WGTI)") end if %> dropped $1 5/8 to $10 1/8 after announcing that it expects to report lower-than-expected revenues and earnings for its fourth fiscal quarter ending September 30, 1997. Manufacturer of aluminum electrolytic capacitors AEROVOX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARVX)") else Response.Write("(Nasdaq: ARVX)") end if %> lost $1 1/16 to $5 5/16 after the company lowered its sales and earnings forecast for the third quarter because of "sharply lower'' bookings in its AC film capacitor lines. DELTA AIR LINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> descended $4 5/8 to $102 1/16 as Credit Suisse First Boston and Lehman Brothers lowered their first-quarter earnings estimates on the company after it issued a warning that it would fall short of previous consensus projections.

In other earnings guidance today, high-performance vehicle parts maker EDELBROCK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EDEL)") else Response.Write("(Nasdaq: EDEL)") end if %> hit the brakes $1 1/8 to $18 3/4 after reporting that it expects strong operating results for its first fiscal quarter, but that its net results may be influenced by the announced reorganization of one of its largest customers, Super Shops Inc. Marine support and transportation services company HVIDE MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMAR)") else Response.Write("(Nasdaq: HMAR)") end if %> sank $3 1/8 to $33 after announcing that it expects earnings in the third quarter ending September 30 to be below analysts' expectations but higher than in the previous quarter, and well above the year-ago period. Thin-film and integrated passive electronic circuit maker CALIFORNIA MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAMD)") else Response.Write("(Nasdaq: CAMD)") end if %> lost $11/16 to $7 1/4 after saying that it expects to post flat sales in the second quarter, leading to profits that will be "somewhat below" the last quarter.

QUICK CUTS: Merrill Lynch shaved its 1997 earnings estimate on shares of server provider DATA GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DGN)") else Response.Write("(NYSE: DGN)") end if %> to $1.29 per share from $1.32 per share, causing Data General to drop $4 3/16 to $29 3/8... Investors may be fearing that heightened scrutiny by antitrust regulators surrounding McKesson Corp.'s proposed acquisition of AmeriSource Health could affect the planned merger between in CARDINAL HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %> and BERGEN BRUNSWIG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %>. Bergen lost $3 11/16 to $42 today... TRUMP HOTELS & CASINO RESORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> lost $7/8 to $11 1/4 after Donaldson, Lufkin & Jenrette cut the casino operator to "market perform" from "buy"... MOORE LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCL)") else Response.Write("(NYSE: MCL)") end if %> dropped $1 1/4 to $20 11/16 after the business forms company said that operating income in the second half would be no better than in the first half... VIACOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA and VIA.B)") else Response.Write("(AMEX: VIA and VIA.B)") end if %> slipped $1 7/8 to $31 5/8 after Goldman Sachs cut its rating on the entertainment company to "market outperform" from its recommended list.

RF POWER PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: RFP)") else Response.Write("(AMEX: RFP)") end if %> fell $1/2 to $5 13/16 after it announced that it had won a two-year $18 million contract extension to supply the radio frequency (RF) power delivery system for a "major" semiconductor equipment manufacturer... Cellular telephone provider AUDIOVOX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VOX)") else Response.Write("(AMEX: VOX)") end if %> slipped $5/8 to $9 7/8 after posting 3Q EPS of $0.16, beating estimates... Cowen & Co. cut its rating on shares of APPLIED ANALYTICAL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAII)") else Response.Write("(Nasdaq: AAII)") end if %> to "buy" from "strong buy," pounding the stock $3 to $20... Automobile anti-theft system company LOJACK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LOJN)") else Response.Write("(Nasdaq: LOJN)") end if %> got ripped off $2 1/8 to $15 3/8 after the company reported 2Q EPS of $0.12, in line with estimates... Boston biotech company BOSTON LIFE SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLSI)") else Response.Write("(Nasdaq: BLSI)") end if %> lost $1 1/32 to $7 19/32 even though a favorable report on the company was issued today by the Stockbrokers Society.

FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki

Big Blue May Have a Rosy Future After All

Two weeks ago, the buzz about IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> was not good. Investors, troubled by the same concerns about currency volatility and uncertain foreign markets that recently sent shares of Coca-Cola and Gillette tumbling, sent IBM's stock to its lowest level in two months after Goldman Sachs lowered its third-quarter earnings estimate by a dime. Given the fact that Big Blue gets 20% of its revenue from Southeast Asia, and that that region's economies are currently struggling to recover from recent assaults on the value of their currencies, it seemed reasonable that IBM would be hit by the same problems currently afflicting other U.S. multinationals. Of course, in typically vague language, Goldman also pointed to "seasonality and product-cycle transitions" as reasons for the change in estimates, though one would have thought any previous estimate would have already taken those into account.

How quickly the worm turns, though. Yesterday, IBM closed at $103, up more than four percent on the day. In the wake of a series of announcements about new product lines and new technological innovations, the anxieties about earnings that had seemed so vivid a few days ago have now apparently vanished. From one angle, in fact, IBM suddenly looks like a company with a plan and the will to carry it out, as opposed to a company living off its heritage and service contracts. While it would certainly be premature to suggest that the reinvention of IBM is complete, this past week has offered a cornucopia of good news about the company.

Last Monday, for instance, IBM announced both a plan to sharply reduce inventories of its PCs and the introduction of DB2 Universal Database, an updated version of a database program equipped with multimedia capability and targeted at Web-based businesses. The inventory-reduction program will allow certain IBM dealers actually to set up operations at the company's PC factories, so that the dealers can assemble computers to customer specifications and ship them out directly. This adoption of what are essentially just-in-time manufacturing principles is still a bit removed from the direct-sales model pioneered by DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, but IBM says it could cut distribution costs on its business computers by as much as 15%. Considering that every attempt IBM has made to enter the direct-sales market has ended badly, this new plan represents an attempt to strike the right balance between the company's elaborate distribution network and its need to compete on cost.

The database program, meanwhile, will at least allow IBM to keep pace with its major competitors, including industry leader ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> and SYBASE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYBS)") else Response.Write("(Nasdaq: SYBS)") end if %>, which also brought out a new database product last week. Some analysts have voiced concerns that the quest for a one-size-fits-all database program is a recipe for failure, but DB2 represents yet another element in IBM's new commitment to the so-called networked world. Every piece of hardware and software the company now builds is Internet-compatible, and tailoring DB2 to the demands of the Web is precisely the right thing for a company looking to the future to do. IBM is currently second in the database market, with a 26% share, trailing Oracle's 30%.

At the same time that it is moving aggressively against its PC and database competitors, Big Blue is looking to make inroads into the market for the PC servers that have eroded so much of its mainframe and minicomputer business. One of the crucial mistakes IBM made in the 1980s was its failure to recognize the implications of the transition from mainframes to servers. At the same time, its continued reliance on the higher-end market made it reluctant to move too strongly into servers for fear of devouring its own business. As a result, COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> now owns 41% of the PC server market in the U.S., while IBM has just 9%. And Dell has recently placed a heavy bet on the future of servers. The introduction of the NetFinity 7000, IBM's server, which will be accompanied by a multimillion dollar advertising campaign, may simply be too little, too late. It's not clear that IBM can really overcome the associations of ponderousness and technological slowness that have afflicted it in the server market. But if the company is to grow earnings, the small- to medium-sized business market is an essential target, and servers -- with their high margins -- could be a crucial product.

All of these initiatives represent serious attempts to improve both IBM's market position and its bottom line. Interestingly, though, investors have been more impressed by the announcement yesterday that IBM scientists have discovered a way to affix copper to silicon without corrupting the silicon. Since copper conducts electricity better than aluminum -- which is currently used in computer chips -- making chips with copper will allow chips to be smaller and, therefore, faster (since the electronic information will not have as far to go). While the best microprocessor made by INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> has circuits that are 0.25 microns wide, IBM said yesterday that it thinks copper will eventually allow for the creation of a 0.1-micron chip. That chip could work three to four times as fast as current processors.

The direct financial implications of the discovery remain unclear. While IBM has patented the copper-fusing process, it's possible that -- now that companies know that fusion is possible -- other firms will come up with their own methods. It seems unlikely that Intel, for example, would enter into a licensing agreement with IBM. At the same time, IBM did $3.5 billion in chip sales last year, primarily to companies like CYRIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> and ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %>. In addition, its recently terminated joint venture with APPLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> and MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> to make the RISC-based PowerPC chip represented an important, if ultimately frustrating, experiment with a non-Pentium architecture. And while IBM derives these revenues from manufacturing chips of these companies' design, not from the independent production of its own chips, the capacity to produce an IBM-branded chip is there. If the company can create production lines to take advantage of this new process, we might see a dramatic change in the balance of power in microprocessing.

In a sense, though, the most important thing about yesterday's announcement was not its immediate impact on IBM's earnings, but rather the message that IBM is back on the cutting edge of technological innovation. While CEO Lou Gerstner has done a solid job of turning the company around since he took over in 1993, IBM has remained in many ways a slow-moving giant. Its operating earnings have been essentially flat, although an aggressive share repurchase program has kept its EPS growing at 6-10% a year, and its margins have stayed low relative to the industry as a whole. At that rate, its P/E ratio of below 20 actually looks a little rich. Obviously, it would be a mistake to think that in the span of two weeks everything has changed. But for the first time in a long time, IBM has the chance to offer more than just security to investors. Growth stock, anyone?

CONFERENCE CALLS

HEILIG-MEYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>
(804) 254-3939 -- replay

MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>
(402) 220-1002 -- replay through 9/23

CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %>
(402) 220-4881 -- replay through 9/29

MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %>
(800) 846-0416 -- replay through 9/24

09/24/97 (Wednesday)
COREL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSFF)") else Response.Write("(Nasdaq: COSFF)") end if %>
(416) 626-4100 (code: 633413) -- replay

THIS WEEK'S CONFERENCE CALL SYNOPSES

ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> Call
EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> Call

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