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The Food & Drug Administration (FDA) today approved a 1994 petition from the Isomedix unit of Steris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRL)") else Response.Write("(Nasdaq: STRL)") end if %> allowing the use of "irradiation" treatments as a means of killing bacteria in the nation's beef, lamb, and pork supply -- thus boosting shares of numerous companies that shoot beams of gamma radiation through meat. Food Technology Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIFL)") else Response.Write("(Nasdaq: VIFL)") end if %> beamed higher $6 1/2 to $11 11/16 and Sterigenics International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STER)") else Response.Write("(Nasdaq: STER)") end if %> gained $3 3/16 to $21 15/16. Final approval from the U.S. Department of Agriculture (USDA) is expected by mid-1998. With roughly 40 countries utilizing the procedure and the U.S. already irradiating poultry, many investors had already positioned themselves for FDA approval after the incident at Hudson Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFI)") else Response.Write("(NYSE: HFI)") end if %> in August when 25 million pounds of contaminated hamburger meat was traced back to Hudson. The increased cost of the procedure -- $0.016 to $0.05 per pound -- should not deter the nation's $430 billion food processing industry from embracing the procedure for the seven billion pounds of ground beef it processes annually.
Biopharmaceutical company Geron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GERN)") else Response.Write("(Nasdaq: GERN)") end if %> moved $1 5/8 higher to $10 3/4 after it reported in Nature Genetics that it had produced "telomerase activity" in normal human cells using the recently cloned gene for the human telomerase catalytic protein. The telomerase enzyme plays a key role in the regulation of cell lifespan. Its absence is related to the death of some cells and its presence imparts "replicative immortality" to others. In other biotechnology news, ZymeTx Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZMTX)") else Response.Write("(Nasdaq: ZMTX)") end if %>, which specializes in virus research, gained $1 to $10 1/4 after announcing that it is completing a manufacturing scale-up and is beginning shipment of commercial quantities of its ZstatFlu influenza test. The company projects that it will manufacture up to 1 million units of the test before the 1997-1998 influenza season "officially" ends in March of 1998. The test has an average price to patients of $30.
Oil service companies and drillers that lost ground yesterday gained some back today as Noble Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> gushed $2 1/8 to $30 13/16, Cooper Cameron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RON)") else Response.Write("(NYSE: RON)") end if %> gained $5 7/16 to $62 11/16, Energy Ventures <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EVI)") else Response.Write("(NYSE: EVI)") end if %> shot $2 3/16 higher to $49 7/8, and Superior Energy Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SESI)") else Response.Write("(Nasdaq: SESI)") end if %> moved up $21/32 to $9 23/32. Diamond Offshore Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> gained $2 9/16 to $48 1/4, Cliffs Drilling Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDG)") else Response.Write("(NYSE: CDG)") end if %> was up $2 15/16 to $54 3/8, and Tidewater Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDW)") else Response.Write("(NYSE: TDW)") end if %> jumped $3 1/8 to $56 7/8. Marine Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDCO)") else Response.Write("(Nasdaq: MDCO)") end if %> also rose $1 3/16 to $21 3/4.
QUICK TAKES: Titan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TTN)") else Response.Write("(NYSE: TTN)") end if %> rocketed $3/4 higher to $7 1/4 after Indonesia's first satellite company, Pasifik Satelit Nusantara <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSNRY)") else Response.Write("(Nasdaq: PSNRY)") end if %>, announced its intention to buy 10,000 Xpress terminals from the company... Schroder & Co. started coverage of American Skiing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKI)") else Response.Write("(NYSE: SKI)") end if %> with a "buy" rating, which boosted the Alpine resort operator $1 9/16 to $16 5/8... Shares of insurance and risk manager Centris Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGE)") else Response.Write("(NYSE: CGE)") end if %> soared $1 15/16 to $23 5/8 after it was announced that a group including Los Angeles investor Michael Halpern submitted a proposal requesting the company's board to consider ways to maximize shareholder value, including a sale of the company... Merrill Lynch raised both its near-term and long-term ratings on Lexmark International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LXK)") else Response.Write("(NYSE: LXK)") end if %> to "buy" from "accumulate," boosting shares of the printer company $2 7/16 to $34 1/2.
Workforce management firm Norrell Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRL)") else Response.Write("(NYSE: NRL)") end if %> gained $1 7/8 to $26 7/8 after it announced that it had acquired privately held M. David Lowe Staffing Services Inc. for an undisclosed sum... Swisher International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWR)") else Response.Write("(Nasdaq: SWR)") end if %>, the world's largest manufacturer of cigars, rose $1 1/8 to $16 1/8 after it announced that it had signed an agreement to purchase a 50% interest in SP Holding Inc., the owner of Puros de Villa Gonzales, a major tobacco processor and manufacturer of premium hand-rolled cigars... Linens & Things <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIN)") else Response.Write("(NYSE: LIN)") end if %> gained $2 7/16 to $36 7/16 after the household products company was upgraded by Paine Webber from "neutral" to "buy"... Bonded Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMTR)") else Response.Write("(Nasdaq: BMTR)") end if %> rose $1 1/4 to $9 1/4 after announcing that it has been awarded a contract to supply remanufactured engines to Genuine Parts' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPC)") else Response.Write("(NYSE: GPC)") end if %> Eastern, Central and Midwest NAPA divisions... Omega Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMGA)") else Response.Write("(Nasdaq: OMGA)") end if %> gained $15/16 to $7 after announcing the launch of Dow Jones TradeStation 5.0, which is compatible with the Dow Jones real-time equity feed.
J.P. Morgan began coverage on shares of Barbeques Galore Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBQZY)") else Response.Write("(Nasdaq: BBQZY)") end if %> with a "buy" rating and a 12-month price target of $18 per share, which helped the stock add $7/8 to $9 1/8...ISG International Software Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SISGF)") else Response.Write("(Nasdaq: SISGF)") end if %> rose $1 5/16 to $13 3/4 after it announced that Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> had recommended ISG's premiere product, ISG Navigator, as a key component of Microsoft's Universal Data Access strategy for accessing multiple platforms and databases... Watch maker Movado Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOVA)") else Response.Write("(Nasdaq: MOVA)") end if %> ticked higher $1 3/4 to $21 after posting Q3 EPS of $0.77 versus estimates for $0.74... Financial news website CNNfn.com and personal finance software company Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> announced a partnership to create "Quicken.com on fn," a personal finance area on CNNfn.com. Intuit rose $1 3/4 to $33 5/8 on the news... It's not a butcher, it's not a baker, but it is a candle stick maker. Blyth Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTH)") else Response.Write("(NYSE: BTH)") end if %> gained $2 1/4 to $27 7/8 after posting Q3 EPS of $0.40, topping estimates of $0.38.
Disk drive maker Western Digital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> was crushed for a $1 3/4 loss to $19 3/8 after it announced that it was going to triple the size of its previously announced second quarter charge to $85-$95 million, indicating that pricing pressures are more extreme and have persisted longer than Western Digital had thought. The charge represents costs that the company will incur in losses on inventory and in realigning production capacity from 3-inch portable disk drives to its enterprise-class products. In addition, the company said that it expects to break even in its upcoming quarter (before the charge), versus its earlier expectations of Q2 EPS of $0.20 to $0.30. For the full year, the third-largest independent manufacturer of disk drives expects to be "modestly profitable." Number two disk drive maker Quantum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> also fell $3 1/4 to $24 1/4 on the news.
Specialty semiconductor company Altera Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTR)") else Response.Write("(Nasdaq: ALTR)") end if %> was squashed for a $10 loss to $40 3/4 on rumors that the company has guided down analysts' expectations for fourth quarter financial performance. While the company had said last quarter that it expected fourth quarter revenues to pick up, that didn't come to pass, eliciting analysts' cuts of fiscal 1997 earnings estimates. Analysts also took out the knife on 1998 estimates, slicing next year's EPS estimate down to $1.80, 10% below the current mean estimate of $2 a share. EPS growth of 16% for the coming year would be quite a letdown from the 35% growth now projected for 1997, but according to Merrill Lynch analyst Tom "Bi-Polar" Kurlak, semiconductor industry overcapacity will restrain growth for Altera. Kurlak is looking for EPS growth of 9.7% in 1998 from Altera. Other analysts are looking at the situation as a replay of past inventory corrections and are reiterating "buys" in the face of a historically low valuation for the maker of specialty logic devices.
If it makes semiconductors, it got slammed today. Dynamic random access memory (DRAM) makers took it on the chin, with Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> falling $4 1/2 to $47 5/16 and Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> sliding $1 1/8 to $26 1/16. Not only is TI being hurt by falling DRAM prices, even as it and partners ramp yields on higher-density 64 megabit DRAM devices, but worries over price erosion in its digital signal processor (DSP) business are also pressuring the semiconductor giant. Application specific integrated circuit maker VLSI Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %> fell $3 1/8 to $19 13/16, and LSI Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %> slid $2 to $23 1/8. DSP maker DSP Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPG)") else Response.Write("(Nasdaq: DSPG)") end if %> lost $3 7/16 to $28 3/8, while communications chip makers Level One Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LEVL)") else Response.Write("(Nasdaq: LEVL)") end if %> declined $1 to $42 3/8 and PMC-Sierra <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMCS)") else Response.Write("(Nasdaq: PMCS)") end if %> lost $2 15/16 to $26 1/16. Investors watching these goings-on are probably getting a little misty-eyed remembering semiconductor industry corrections of days past, where momentum funds and other institutions chucked well-run companies with differentiated products out with the commodity makers of integrated circuits.
QUICK CUTS: Healthcare analysis company National Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRCI)") else Response.Write("(Nasdaq: NRCI)") end if %> was smashed for $11 3/4 to $6 3/4 after announcing that it has lost next year's contract to provide analysis for the Northern California unit of managed healthcare company Kaiser Permanente. That contract represented about one-third of NRC's revenues through nine months of 1997... Drug company Agouron Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGPH)") else Response.Write("(Nasdaq: AGPH)") end if %> lost $8 1/2 to $31 after it announced that it had agreed to end its collaboration with F. Hoffmann-La Roche (Roche) in the field of cancer... Luggage company Samsonite Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAMC)") else Response.Write("(Nasdaq: SAMC)") end if %> dropped $3 1/4 to $32 1/2 after it announced Q3 EPS of $0.65 (before a bevy of one-time financial events) versus estimates for $0.69 a share.
Telecom timing equipment device manufacturer Datum Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DATM)") else Response.Write("(Nasdaq: DATM)") end if %> fell $3 5/8 to $15 1/8 after saying that it expects to report break-even operating EPS for the fourth quarter, far below First Call's mean estimate of $0.24 and Q3 EPS of $0.28... Women's clothing retailer Paul Harris Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAUH)") else Response.Write("(Nasdaq: PAUH)") end if %> was shredded for a $3 13/16 loss to $17 1/4 as investors worry that the company's inventory isn't coming off the racks as quickly as believed... Disk drive component suppliers fell on a negative outlook from Western Digital Corp. today. Head makers Read-Rite Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> lost $1 15/16 to $17 11/16 and Applied Magnetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> fell $1 3/4 to $16 1/16, flexible circuit company AdFlex Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFLX)") else Response.Write("(Nasdaq: AFLX)") end if %> tumbled $2 3/16 to $17 11/16, and media manufacturer Komag Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KMAG)") else Response.Write("(Nasdaq: KMAG)") end if %> had $1 3/4 erased from its share price to close at $19.
With evidence of slowdown in demand for telecom infrastructure and handsets, BA Robertson Stephens lowered earnings estimates on the manufacturers of such equipment. Nokia <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOK.A)") else Response.Write("(NYSE: NOK.A)") end if %> fell $5 to $77 7/16, Ericsson <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> dimmed $3 1/8 to $38 5/8, and Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> slid $2 3/4 to $3 5/8... Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> was trimmed for a $3 loss to $27 3/4 as local area network backbone providers and broadline networking equipment manufacturers lost ground after an earnings warning from Cabletron Systems. Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> outperformed its peers today, losing only $3 15/16 to $86 1/2, while Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> dropped $1 13/16 to $23 3/4... National Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %> descended $2 7/16 to $32 5/16 and French company SGS-Thompson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STM)") else Response.Write("(NYSE: STM)") end if %> lost $5 3/8 to $69 9/16, joining the rest of their semiconductor brethren and sisteren in a sector sell-off.
FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki
Cabletron Disappoints Again
How many quarters in a row does a company have to disappoint investor expectations before those investors decide to head for greener pastures? Networking-equipment manufacturer Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> seems to be on the verge of finding out, after announcing Tuesday morning that earnings for its third quarter -- which ended in November -- would come in far below analysts' estimates. This is the third straight quarter that Cabletron has missed estimates, and the company's stock today took its second massive hit of the year, plummeting 33% to $15 5/8. (In June, Cabletron's shares fell by a third when the company announced it would miss first-quarter estimates.) But the magnitude of this quarter's shortfall -- Cabletron said it would likely earn between $0.08 and $0.12 a share, while the First Call consensus was for $0.39 a share -- overshadows those of previous quarters and suggests that Cabletron is running into serious problems in its core business.
As in previous quarters, Cabletron's explanation for the shortfall was rather sketchy, with CEO Don Reed saying that management did "not yet have all the details." The company did point to a dramatic dropoff in business at the end of the quarter as a result of weakness in domestic orders and "delayed Federal Government decisions," though Cabletron did not say what those decisions were or whether the company expected to be able to make up some of the lost business when those decisions were finally made. In one respect, Cabletron's problems in the quarter were typical of many networking firms, which book the majority of their orders towards the end of quarters and are therefore left hanging when those orders don't materialize. But the fact that these problems are common doesn't make the company's inability to solve them -- most obviously by doing a better job of forecasting demand -- any more comforting to investors.
On a deeper level, Cabletron's continued woes are the result of transformations in the networking business as a whole, and of Cabletron's inability to get off the mark in adjusting to those transformations. The company built its business around hub technology, which put it at the cutting-edge of the networking equipment world during the early part of this decade. But the real boom today is in the market for network switches, which facilitate the transmission of data on a network by essentially serving as traffic signals. And while Cabletron's acquisition of Standard Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMSC)") else Response.Write("(Nasdaq: SMSC)") end if %> networking business in 1995 was intended to give the company a base in the network-switch market, it has not been able to make the transition from hub technology easily. As a result, Cabletron is now the fourth-largest network equipment maker, between Cisco <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>, 3Com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>, and Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %>. More importantly, Cabletron's recipe for reviving earnings growth remains decidedly unclear. While networking stocks as a whole have had a tough year, Cabletron's problems are less cyclical than they are company-specific.
Cabletron's stock is now at its 52-week low, with shares trading at almost a third of where they were in May when CNBC technical analyst John Murphy -- in a true "Dewey Beats Truman" moment -- suggested that the company was the strongest stock in a strong group and that it was ready to break out. Cabletron's inventories have risen steadily throughout the year, while its operating and profit margins have dropped. Although the company has continued to increase expenditures on marketing, its sales have been weak across the board. Cabletron does business in more than 100 countries, and right now not one of those countries seems to be in love with its products.
Is there any silver lining at all in this cloud? Certainly there were many who hoped that Reed, who was brought on board in August to replace company founder Robert Levine, would be able to turn the company around, and obviously this last quarter's performance can't be taken as evidence against him. The company's $430 million acquisition last month of the networking-equipment business of Digital Equipment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> was an unusual move by a company that traditionally has grown from within, and suggested that Reed was being aggressive in his turnaround efforts. Unfortunately, DEC's business was a deteriorating one, and the acquisition seems unlikely to be a panacea for Cabletron's problems.
The only real positives right now are the fact that the company has no debt and that after today's tumble the stock trades at a P/E ratio of just 10, while Cisco's P/E is 50 and 3Com's is 31. On the other hand, both of those companies are growing quarter-over-quarter and year-over-year, while Cabletron's future earnings growth looks bleak for at least the next few quarters. Networking is obviously the future of computers, which means it's an important part of the future of American business. But the pressure to stay ahead of the technology curve is immense, and once you fall behind -- as Cabletron did -- getting back in front is a long-term project at best.
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