ITT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> jumped $5 1/4 to $67 3/4 after a federal court granted the motion of HILTON HOTELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> to put the decision to carve up ITT into the hands of ITT shareholders. Previously, ITT's board approved a plan for ITT to split into three independent public companies: ITT Corp., ITT Destinations Inc., and ITT Educational Services Inc. The initial impetus for the break-up was a bid by ITT to thwart Hilton's $8.3 billion hostile takeover offer, and was the cornerstone of ITT's defense. ITT's management also implemented a $70 per share buyback offer for 25% of the shares in order to try to consolidate control of the company. The rise today can be attributed to speculation that ITT will have to raise the price of its $70 offer since Hilton has a $70 competing offer. Hilton hopes to sway ITT holders to see the wisdom in combining the two companies to form a global hotel-and-casino powerhouse. Hilton probably won't change its offer (6.5 million shares have been tendered so far) and already has plans to mail independent proxy solicitations for replacing the current ITT board.
LORAL SPACE & COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOR)") else Response.Write("(NYSE: LOR)") end if %> gained $1 3/8 to $20 5/8 after GLOBALSTAR TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSTRF)") else Response.Write("(Nasdaq: GSTRF)") end if %> announced the commencement of construction on one of two planned earth stations in Canada. The Canadian market will now be open to satellite telephony services from Globalstar. The "Globalstar system" refers to a global Low Earth Orbit (LEO) satellite system that underwent its formative technical and design development through the combined efforts of QUALCOMM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %> and Loral, the majority equity stakeholder in the venture. This first "gateway" in Canada is one of 36 gateways recently purchased by Globalstar's partners in a $275 million order placed earlier this year.
Short sellers were squeezed today as the price of gold and silver rose. The spot gold price was recently trading at about $331 an ounce, up $1.60 on the day. This prompted a boost in the shares of some gold and mining concerns, notably KINROSE GOLD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KGC)") else Response.Write("(NYSE: KGC)") end if %>, which rose $5/16 to $5 7/16; BATTLE MOUNTAIN GOLD CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMG)") else Response.Write("(NYSE: BMG)") end if %>, which ran up $3/4 to $7 3/16; and ECHO BAY MINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ECO)") else Response.Write("(AMEX: ECO)") end if %>, climbing $1/2 to $5 5/8.
QUICK TAKES: Jakarta-based GULF INDONESIA RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRL)") else Response.Write("(NYSE: GRL)") end if %> gushed $2 3/4 higher to $22 1/4 today on its IPO. Gulf Indonesia explores, develops, and produces oil and natural gas in and off the coast of Indonesia... Oil and gas exploration and production firm CROSS TIMBERS OIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XTO)") else Response.Write("(NYSE: XTO)") end if %> rose $1 5/16 to $24 3/8 on announcing the acquisition of "approximately 170,000 net acres concentrated in San Juan and Rio Arriba counties of New Mexico" from an AMOCO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AN)") else Response.Write("(NYSE: AN)") end if %> subsidiary... AVIATION GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVGP)") else Response.Write("(Nasdaq: AVGP)") end if %> ascended $7/8 to $9 1/8 after announcing that it was awarded a wide-body paint services contract from Boeing Commercial Airplane Group... Shares of information management company UNISYS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UIS)") else Response.Write("(NYSE: UIS)") end if %> rose $11/16 to $15 5/16 on an upgrade from Smith Barney to "buy" from "neutral."
J.P. Morgan initiated coverage of wireless operator PRICELLULAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PC)") else Response.Write("(AMEX: PC)") end if %> with a "buy" rating, helping boost shares $15/16 to $9 15/16... DAXOR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: DXR)") else Response.Write("(AMEX: DXR)") end if %> moved $3 1/2 higher to $13 5/8 after announcing FDA approval of its blood volume analyzer... Biotech company REGENERON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REGN)") else Response.Write("(Nasdaq: REGN)") end if %> surged $1 3/8 to $11 3/16 on announcing an extension of its pharmaceutical development partnership with PROCTER & GAMBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %>... IDEC PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDPH)") else Response.Write("(Nasdaq: IDPH)") end if %> rose $4 7/8 to $41 7/8 after Merrill Lynch raised its rating on the developer of therapies for autoimmune diseases to "buy" from "accumulate"... Nursing home and subacute care provider ARBOR HEALTH CARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHCC)") else Response.Write("(Nasdaq: AHCC)") end if %> gained $5 1/8 to $44 1/8 on news that it will be acquired by Canadian healthcare provider Extendicare for $45 per share in cash.
Competitive local exchange carrier ICG COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICGX)") else Response.Write("(Nasdaq: ICGX)") end if %> today announced that its wholly owned subsidiary, ICG Telecom Group Inc., has tapped James Newman as its Senior Vice President and Chief Information Officer. ICG shares moved up $4 5/16 to $24 1/2... MILESTONE SCIENTIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAND)") else Response.Write("(Nasdaq: WAND)") end if %> rose $1 7/8 to $28 3/8 after yesterday announcing the launch of its "Wand," an FDA-approved local anesthetic injection device designed to replace syringes used in dentistry... Shares of network security solutions provider SECURE COMPUTING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:SCUR)") else Response.Write("(Nasdaq:SCUR)") end if %> moved $1 1/2 higher to $8 15/16 after announcing that Michael Anderegg has joined the company to spearhead relations with the financial community... COSTILLA ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSE)") else Response.Write("(Nasdaq: COSE)") end if %> added $1 3/4 to $14 1/4 on reporting that gas has been discovered in a Cotton Valley pinnacle reef by the McMahon #4, a well in which the company has a 26% working interest.
Wide area networking equipment company ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> fell $2 7/8 to $32 3/8 after warning that it expects to report Q3 EPS of $0.18 to $0.20, somewhat below the First Call mean estimate of $0.31 per share. The company had said earlier that the final few weeks of the quarter would make or break performance, and this isn't the first time (or the third time) that the company has come into the final weeks of a quarter not knowing if it would make its numbers. With such a high momentum market for access concentrators, the company has usually been able to turn around orders in the same day in the quarter's final stretch to meet its numbers. The company saw slowness in Europe and Japan, where capacity additions have outrun demand growth, as well as problems with deployment of its MAX TNT concentrator in Europe. With today's less than 10% drop in share price, though, one could say this was already largely priced into the shares. Investors will get a clearer picture of what's happening with Ascend in October's conference call.
News from WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> that disk drive pricing is descending put others in PC-related industries on the defensive. Whether soft pricing in the disk drive distribution channel means overproduction in past quarters or soft PC demand, neither reason burnishes the bullish outlook that has prevailed for the PC industry since COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> and DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> issued optimistic outlooks a few weeks back. INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> fell back $3 1/16 to $92 5/16 and disk drive head supplier READ-RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> slid $2 5/16 to $24 1/2. Major desktop disk drive supplier QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> fared poorly on the news, losing $4 1/8 to $38 5/16, while SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> held steady, having had the stuffing knocked out of it on more than one occasion in past months. For more on Western Digital, see tonight's Fool on the Hill column.
QUICK CUTS: Health management company UNITED AMERICAN HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAH)") else Response.Write("(NYSE: UAH)") end if %> fell $1 1/16 to $5 3/16 after saying that it will file its yearly financials late and that it expects to report a loss of $0.53 per share for the year, compared with a loss of $0.42 per share last year... Diversified semiconductor company ZILOG INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZLG)") else Response.Write("(NYSE: ZLG)") end if %> lost $2 13/16 to $21 13/16 on pre-announcing Q3 EPS of $0.06 to $0.08, below the mean estimate of $0.26... Producer of ceramic tile DAL-TILE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DTL)") else Response.Write("(NYSE: DTL)") end if %> continued its string of pre-announcement warnings, losing $1 3/4 to $15 after saying it expects to report a pre-tax third quarter loss of about $12 million, or $0.22 per share, as a result of higher costs in production, transportation, and other areas... Resource recovery company PHILIP SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHV)") else Response.Write("(NYSE: PHV)") end if %> fell $1 1/8 to $18 1/4 after institutional brokerage Deutsche Morgan Grenfell lowered its rating on the company to "hold" from "buy" after the company announced a 20 million share offering.
NETSCAPE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> slid $2 1/2 to $36 as Microsoft rolled out its next-generation Internet Explorer browser... Information and document management company IMNET SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNT)") else Response.Write("(Nasdaq: IMNT)") end if %> crashed $13 9/16 to $26 7/8 on announcing that the Securities and Exchange Commission made a "confidential informal inquiry" to its auditor, KPMG Peat Marwick LLP... ROADHOUSE GRILL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRLL)") else Response.Write("(Nasdaq: GRLL)") end if %> lost $1 3/16 to $3 3/4 on forecasting a loss for the quarter, contrary to the expectations of the analysts who follow the company... Analog and mixed signal semiconductor company TRIQUINT SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TQNT)") else Response.Write("(Nasdaq: TQNT)") end if %> slid $8 to $36 1/8 before being halted for pending news... AUTOZONE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZO)") else Response.Write("(NYSE: AZO)") end if %> lost $1 3/4 to $29 7/8 even though the auto parts and accessories chain reported Q4 EPS of $0.53, beating estimates of $0.30, even adjusting the company's 16-week fourth quarter to a 13-week quarter.
FOOL ON THE HILL
An Investment Opinion by Randy Befumo
Western Digital Goes South
WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> tumbled $9 to $40 after yesterday's New York close of $49. The Irvine, California-based manufacturer of hard drives forecast lower-than-expected profits in the fiscal first quarter. In a press release, Western Digital blamed "greater than anticipated competitive pressure," words that struck fear into the hearts of every person familiar with the prodigal history of the storage industry. Harkening back to the bygone 1980s where price-cutting was the principal tool to gain market share, nervous investors slashed prices on Western Digital stock by almost 25%.
In spite of the carnage on the Street, year-over-year growth in earnings and unit volume remain impressive. Instead of the $0.80 EPS analysts had been forecasting, Western Digital now expects to come in somewhere between $0.63 to $0.66 EPS -- up 80% versus year-ago levels. The company shipped 6.3 million drives in the quarter, 28.5% higher than the same period a year ago. As the PC industry as a whole grew by around 19% last quarter and Western's high-end drives are still a relatively small part of its total unit volume, Western Digital apparently has been taking market share in desktop PCs. It is just this reliance on the desktop that has apparently caused the earnings shortfall, as one of Western's desktop models has become less profitable than it had anticipated.
Although not in the press release, sources indicate that the price pressure was in the 1.2 gigabyte hard drives in the general distribution channels. Competitor SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> was apparently too optimistic when it originally forecast summer PC demand and made too many of those popular units. The PC manufacturers, also known as original equipment manufacturers (OEMs), ordered fewer 1.2 gigabyte drives from Seagate than projected. The Scotts Valley, California-based titan was left stuffing product into traditional distribution channels at reduced prices. The glut of 1.2 gig drives hurt sales and possibly pricing in other sizes as the cost differential between 1.2 gig and the next size up expanded.
With Seagate all over the news in April and May forecasting lower-than-expected profits due to competition in high-end drives, this sudden bout of weakness in the low-end units used in desktop PCs comes as an abrupt turn. Seagate is not designed to turn production on a dime. Western Digital, on the other hand, has developed a "platform" mentality that lets it shift effortlessly between 1.2 gig units and higher sizes if pricing in the channel drops, allowing it to take advantage of products where the operating margins are higher. If you control the making of components for drives as well as the drives themselves, as vertically-integrated Seagate does, you have less flexibility when it comes to moving your production from 1.2 gig drives to 1.5 gig drives when you have already made a pile of 1.2 gig parts.
With prices holding firm over the last two weeks, storage industry executives are holding their breaths and hoping this round of bloodletting is over. The question becomes whether this is a prelude to the irrationality of the past or just part of doing business. Supporters of Western Digital have argued that a new day has dawned for the drive manufacturers and they have seen the stupidity of their past battles for market share. The question facing those who own shares in drive-makers or drive-related businesses is whether or not this situation is a sign of the rebirth of the barbarian price wars of the past.
"Pricing was hurt dramatically [on 1.2 gig drives]... in the low double-digits in percentage terms," said Legg Mason analyst Lisa Rapuano. "But in the olden days when this happened the double-digits were high double-digits and the drive companies lost money." With Western Digital still forecasting a substantial profit up 80% from a year ago, it would seem that there has been a change. "Seagate lowering their prices on 1.2 gig drives because they have a glut is rational," Rapuano stated. By implication, what would have been irrational is if it had started to lower prices to gain market share, not to get back as much of the capital it invested in the 1.2 gig drives as it could.
With demand clearly strong for both desktop and the high-end drives Digital has been manufacturing, as long as these manufacturers do not drive one another into ruin there seems to be quite a bit of money still to be made. Old habits, however, die hard. Much as semiconductor equipment company shares were reduced to rubble in 1996 as investors who recalled past downturns in the industry assumed the outcome during that downturn would be substantially similar, the drive makers are still traded by a classic group of momentum players who believe in following the trend. All of the momentum investors who worked their way into Western Digital shares over the past few months were flushed out today due to concern over pricing.
If Seagate really had wanted to cut prices to gain market share, it would have cut them where it had room to spare -- in the high-end drives. Renewed competition from QUANTUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> and Hitachi along with new competition from Western Digital has put extreme competitive pressure on Seagate in its most profitable business over the last two quarters. If wars in market share are to be fought, it seems that they would be fought on the high-end where the winner stands ready to enjoy the full spoils of victory -- not a consolation prize and strict adherence to the demands of the aggrandized PC manufacturers.
COREL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSFF)") else Response.Write("(Nasdaq: COSFF)") end if %>
(416) 626-4100 (code: 633413) -- replay
COGNOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
(800) 997-6906 -- replay through 9/30
CANANDAIGUA BRANDS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRNA)") else Response.Write("(Nasdaq: CBRNA)") end if %>
(800) 964-3296 -- replay through 10/2
THE FINISH LINE, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FINL)") else Response.Write("(Nasdaq: FINL)") end if %>
(800) 839-8273 -- replay through 10/2
THIS WEEK'S CONFERENCE CALL SYNOPSES
3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> Call
MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> Call
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