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HEROES

Visual Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VNWK)") else Response.Write("(Nasdaq: VNWK)") end if %> shot up $5 to $17 1/2 after its initial public offering of 13.5 million shares was priced this morning at $12.50 per share, toward the high end of the $11 to $13 range expected by the company. In all, the offering raised $40.7 million (after fees) for the Rockville, Maryland-based company, according to Bloomberg. The manufacturer of performance monitoring and troubleshooting instrumentation for wide-area network (WAN) circuits recorded a fiscal 1997 loss of $152,000 or a penny per share pro forma, according to its S-1 SEC filing. Revenues totaled $23.7 million, a 273% increase from the $6.3 million in sales posted in 1996, and most of that came from the company's single product, "Visual UpTime." In addition, nearly 50% of those 1997 revenues came from three customers -- Sprint <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>, Federal Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> and AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>. However, with the market for frame relay circuitry expected to grow by 920,000 circuits over the next three years and ATM and IP/Internet services also set for strong growth, Visual is well situated to snap up orders for its field-deployed WAN service management products.

The Donald has been saying it for months -- if the equity value of Trump Hotels and Casino Resorts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> doesn't improve, he's going to buy it out or arrange some other way to improve the situation. Donald Trump may be a windbag, but he's a windbag who follows up on many of his claims, which in this case popped the stock $1 3/4 higher to $11 1/16. The company announced that it had retained Donaldson, Lufkin & Jenrette to look into strategic alternatives, which could include a recapitalization or outright sale of the operator of Trump Plaza Hotel and Casino and the Trump Taj Mahal, among other properties. In Trump's world, he figures the company should be priced out at $37 per share (he quoted a favorable analyst report), which would put Trump at 9.7 times trailing gross cash flow. This estimate comes from the amount that Crescent Real Estate recently paid to acquire Station Casinos. The folly of the this assessment can be seen when looking at Trump's debt load, which currently puts it at 1.3 times enterprise value to sales. This doesn't seem like much until compared with the fact that Trump currently trades at 0.17 times sales. Trump's $1.7 billion debt load will probably reduce its valuation to say, a conservative 5 times gross cash flow, which would price shares at around $14 (near its IPO price).

QUICK TAKES: Medical and surgical supplies company Owens & Minor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMI)") else Response.Write("(NYSE: OMI)") end if %> rose $1 5/8 to $15 5/16 after reporting Q4 EPS of $0.18, which was in line with First Call's mean estimate. The stock was also upgraded to "buy" from "outperform" by Salomon Smith Barney... Industrial wire and nail manufacturer Insteel Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: III)") else Response.Write("(NYSE: III)") end if %> moved up $3/8 to $6 11/16 after announcing it will pay a regular quarterly dividend of $0.06 per share starting April 1. The company also said that it sold its agricultural fencing business to Keystone Consolidated Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KES)") else Response.Write("(NYSE: KES)") end if %> for roughly $13 million... Donnelley Enterprise Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DEZI)") else Response.Write("(Nasdaq: DEZI)") end if %> advanced $1 3/4 to $10 1/4 after announcing Q4 EPS of $0.03 compared to a loss of $0.09 per share year ago, beating the First Call consensus estimate of a penny for the quarter.

Battered managed care provider Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> finally got some good news today after it was revealed that value fund gooroo Michael Price has bought a chunk. Franklin Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEN)") else Response.Write("(NYSE: BEN)") end if %> said in a 13D filing that it has acquired a 5.5% stake in the company, or about 4.33 million shares. Oxford's stock rose $2 13/16 to $19 1/4 on the news... Computer animation studio Pixar <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PIXR)") else Response.Write("(Nasdaq: PIXR)") end if %> picked up $5 to $35 after announcing Q4 EPS of $0.09, topping the First Call mean estimate of a $0.01 a share. Hambrecht & Quist upgraded the stock to "strong buy" from "buy"... Broadband Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBTK)") else Response.Write("(Nasdaq: BBTK)") end if %> gained $2 3/4 to $7 3/4 after announcing a development pact and original equipment manufacturer (OEM) agreement with Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> under which Broadband will license local loop intellectual property from Lucent and have the opportunity to supply Lucent with equipment coming out of the development pact.

Telecom test equipment manufacturer IFR Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFRS)") else Response.Write("(Nasdaq: IFRS)") end if %> jumped $4 1/4 to $21 after announcing an agreement to acquire test equipment manufacturer Marconi Instruments from General Electric Co. Plc. for $107 million in cash... Unifab International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UFAB)") else Response.Write("(Nasdaq: UFAB)") end if %> rose $1 3/4 to $18 7/8 after the manufacturer of oil and gas platforms and equipment said it will acquire Professional Industrial Maintenance, which adds to Unifab's drilling rig maintenance services... Canadian National Railway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNI)") else Response.Write("(NYSE: CNI)") end if %> added $2 9/16 to $56 on confirming that it's in talks to acquire Illinois Central <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IC)") else Response.Write("(NYSE: IC)") end if %> "in the high $30s per share range." Illinois Central had been rumored to be in talks and saw its options jump earlier this week... Nifty 50 member Polaroid Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRD)") else Response.Write("(NYSE: PRD)") end if %> gained $2 3/16 to $45 3/4 after announcing a set of product initiatives that includes marketing a digital camera manufactured by Sony and a sub-$20 one-time use camera that produces instant prints.

EARNINGS MOVERS

Open Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMKT)") else Response.Write("(Nasdaq: OMKT)") end if %> up $2 13/16 to $12 9/16; Q4 EPS: ($0.09); Estimate: ($0.13)

Business Objects <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOBJY)") else Response.Write("(Nasdaq: BOBJY)") end if %> up $1 1/2 to $13 1/4; Q4 EPS: $0.10; Estimate: $0.07

Tekelec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TKLC)") else Response.Write("(Nasdaq: TKLC)") end if %> up $4 7/8 to $40 1/4; Q4 EPS: $0.31; Estimate: $0.23

GOATS

Wireless phone service provider, equipment maker, and related infrastructure supplier Qualcomm Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %> fell $8 1/2 to $47 3/4 after shocking investors last night by announcing that it expects to report flat Q2 EPS in comparison to the prior year period. A year ago Qualcomm earned $0.23 per share, which stands in stark contrast with current Q2 estimates for $0.50 per share. Qualcomm investors are reeling largely as a result of the company's about-face with respect to its forecast for South Korean demand. Just a little over two weeks ago, Qualcomm reported that demand for its ASIC products in Korea "continues to be positive," and that it expected to sell more equipment in that country (offsetting declines in the nation's currency). Last night Qualcomm provided an "Update" on the Korean market, reporting that two Korean manufacturers had requested a partial cancellation of Q2 orders and that a previously announced order for 1800 Mhz Q-Phones "will not be fulfilled." The company also said that overall sales for its various Q-phones are expected to be lower than anticipated in the second quarter and that it will lay off 700 members of its "temporary" manufacturing workforce.

Sticking with the Korea-induced goat theme for today, surface acoustic wave (SAW) wireless technology provider Sawtek Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAWS)") else Response.Write("(Nasdaq: SAWS)") end if %> dropped $6 3/16 to $24 7/16 after announcing that a major Korean customer had requested a partial cancellation of its orders from the company for the second (current) and third quarters of this year. However, the company noted that one of its customers, Qualcomm, has not cancelled any orders to date. Business from U.S. and European customers remains strong and accelerated shipments to these regions may offset the near-term losses from the Korean cancellations, the company said. With 20% of the company's sales coming from the region, investors must calculate how much of the company's Korean business can be given up for dead for the firm to make its numbers. Current estimates are that even with half of its sales lost, the U.S. and Europe can take up the slack (Q2 estimates are for $0.30 per share).

Electronics connectors manufacturer Berg Electronics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEI)") else Response.Write("(NYSE: BEI)") end if %> shorted out today, falling $2 3/16 to $25 7/8 on news that a group led by buyout firm Hicks, Muse, Tate & Furst will sell about 9.9 million shares of Berg in a secondary offering at $25 per share. Institutional investors help out with the offering, but they usually aren't going to hang on to that stake for too long. For coming up with the $250 million+ in cash that the selling stockholders are raising, the institutional people lined up to buy the shares at $25 apiece when the market price for Berg's shares was $28. If they're lucky, the institutions will realize a dollar or so per share on the difference, after all the costs of the transaction are taken into account. Anticipating the selling endgame in this secondary offering process, market makers and investors pulled their bid back. Plus, if the insiders think the value of the shares is $25, then who are investors to argue with that 10.7% discount to the market?

QUICK CUTS: Metals recovery and industrial services company Philip Services Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHV)") else Response.Write("(NYSE: PHV)") end if %> lost $1/2 to $8 1/4 after a class action lawsuit was filed that alleges that Philip overstated inventories and goodwill in its third quarter financial statements, leading to misleading assets and earnings figures for the quarter... Western Gas Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WGR)") else Response.Write("(NYSE: WGR)") end if %> lost $1 1/16 to $18 after Goldman Sachs removed the stock from its recommended list and downgraded the stock to "market perform"... Housewares retailer Pier 1 Imports <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %> dropped $1 7/16 to $26 1/2 after Wheat First Butcher Singer downgraded the stock to "outperform" from "buy."

Mortgage lender Ocwen Asset Investment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OAIC)") else Response.Write("(Nasdaq: OAIC)") end if %> fell $2 7/8 to $17 15/16 after announcing that it will take a $2.2 million charge on earnings due to higher mortgage prepayment rates. The charge is expected to cut Q1 earnings by about $0.16 to $0.20 per share and Q2 earnings by about $0.03 per share... Dilution fears dropped the stock of Koppin Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KOPN)") else Response.Write("(Nasdaq: KOPN)") end if %> $2 13/16 to $17 1/4 after the manufacturer of flat panel video displays announced that it will sell two million shares of its stock in a combined public/secondary offering at $19 per share... Simulation Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMCI)") else Response.Write("(Nasdaq: SMCI)") end if %> plunged $5 13/16 to $7 7/16 after reporting Q4 EPS of $0.01 compared to $0.11 a year ago -- far below the First Call consensus estimate of $0.18. The software provider to the petroleum, petrochemical, and industrial chemical process industries attributed the weak performance to unexpected R&D expenses, problems with the launch of its PRO/II Version 5 software, and a delay in the renewal of a major contract.

Software supplier SystemSoft Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYSF)") else Response.Write("(Nasdaq: SYSF)") end if %> dropped $1 7/8 to $3 5/16 after saying that it expects a Q4 loss of $0.20 to $0.23 per share versus earnings of $0.08 per share a year ago. The First Call estimate for the quarter was $0.05 per share... Business consulting firm Intelligroup Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITIG)") else Response.Write("(Nasdaq: ITIG)") end if %> fell $3 3/8 to $16 1/4 after reporting Q4 EPS of $0.07 compared with $0.09 (before charges) a year ago. The results fell below the First Call consensus estimate of $0.13 per share. The company said the reduced earnings stemmed from the delay of certain projects from the second half of the quarter to the first quarter of 1998... Casket maker York Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YRKG)") else Response.Write("(Nasdaq: YRKG)") end if %> was buried today, falling $7 5/16 to $15 3/4 after deathcare services company Service Corp. International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRV)") else Response.Write("(NYSE: SRV)") end if %> said it will start buying virtually all of its caskets from another supplier when its current contract with York expires on Jan 1, 1999.

Telecommunications transmission products maker Ortel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORTL)") else Response.Write("(Nasdaq: ORTL)") end if %> rang up a $1 3/8 loss to $11 11/16 after reporting that operations will be "near break-even" due to the effects of the Asian financial crisis. First Call was expecting Q3 earnings of $0.11 per share... Boom! Rocket propellant manufacturer OEA Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OEA)") else Response.Write("(NYSE: OEA)") end if %> fell $3 1/2 to $25 1/4 after announcing that it expects Q4 EPS to come in around $0.22 to $0.24, at least a dime below the First Call consensus estimate of $0.35 per share. The company said the weak earnings are due mostly to shortages from a parts supplier... Online grocer Peapod Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PPOD)") else Response.Write("(Nasdaq: PPOD)") end if %> slipped $5/8 to $5 7/8 after reporting a Q4 loss of $0.25 per share versus estimates for a loss of $0.23 per share... Semiconductor and peripherals supplier Bell Microproducts <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BELM)") else Response.Write("(Nasdaq: BELM)") end if %> fell $29/32 to $7 13/16 after reporting Q4 EPS of $0.01 versus $0.27 a year ago. The results were attributed to weaker orders from disk drive makers.

FOOL ON THE HILL
An Investment Opinion
by Jim Surowiecki

The Netscape Suitors

Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> jumped nearly 25% earlier this week as rumors circulated that the Mountain View, California maker of enterprise software and browsers for the World Wide Web is shopping itself around. Netscape's market capitalization was boosted $400 million as some pretty big names in the software world were mentioned as possible acquirers. This isn't a penny stock with "tons of potential" -- it's a serious software firm that has had difficulties achieving its goals over the last year as it has moved to combine all the disparate software companies it has acquired to build the next generation of enterprise software products. The rumors might be total nonsense, but the rationale behind them makes sense. Sensibility is the backbone of good rumors or lies.

Those rumors were first published in a story in Thursday's Wall Street Journal, but they had been floating around the Street the day before, when Netscape's stock jumped 10% before tacking on another 2 1/2 points yesterday. The Journal piece suggested that Netscape had been talking to Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>, Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %>, IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>, and America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, and that the struggling firm was interested in selling all or part of itself. What wasn't made clear in any of the press coverage, though, was what part of itself Netscape was interested in selling, nor were any numbers mentioned, though everyone seemed to agree that the dramatic drop in Netscape's stock price -- from a high of $80 last year to $17 1/2 just a few days ago -- had made an acquisition more feasible.

Nonetheless, the possibility of a deal being consummated anytime soon seems very unlikely, which means that buying Netscape stock in anticipation of a big payoff is a feat that individual investors should probably leave to arbitrageurs. That's not just because mergers of any stripe are difficult to arrange, but also because Netscape's business fits differently with each of the companies mentioned in the Journal article. For Sun Microsystems, Netscape would extend Sun's intranet and Internet strengths by adding applications software. The combination of Netscape's enterprise software and Sun's workstation and server business would help Sun become the kind of one-stop-shopping company that would allow it to compete more effectively against Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Windows NT-driven inroads into the corporate market.

Similarly, the combination of Netscape's intranet software and Oracle's database software also offers intriguing possibilities. But the fact that both Oracle and Netscape turned in very weak performances in their last quarters and that Oracle's diversions into enterprises outside its core business -- like network computers -- have investors concerned means that any Oracle-Netscape deal could create more problems than it would solve. Still, though, the thought of combining the people with the most popular client for web access with the people that run the huge databases on the server side is intriguing.

IBM's name, one suspects, was included in the story because any time any technology company is in play IBM is mentioned, simply as a result of Big Blue's size. As for America Online, the acquisition of Netscape's browser business would strengthen AOL's Web presence and presumably enhance its appeal to advertisers, but in bottom-line terms it's hard to see how owning Netscape's browser would mark a dramatic improvement from the current deals America Online has with both Netscape and Microsoft. (Entering the intranet software business is something AOL should think hard about before doing, considering that's a major step outside its consumer focus and competencies and considering how AOL could use some help in making its network thoroughly robust and fault-tolerant.)

The most interesting partner for Netscape is the last member of the unofficial "We Hate Microsoft" club, namely Novell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %>, which pioneered the development of corporate networking software and still retains a huge installed base of customers. Novell is sitting on a pile of cash, but has been struggling under new CEO Eric Schmidt (formerly of Sun) to re-establish credibility with corporate customers and to rebuild a brand name that was seriously marred by the company's disastrous acquisition of WordPerfect. Netscape and Novell have already partnered on Novonyx, a project designed to adapt Netscape's software to Novell's operating system, and a Novell-Netscape merger might provide the kinds of synergies that companies dream about but rarely realize. On the other hand, no one has mentioned Novell as a realistic suitor, probably because the company's stock price is so depressed.

What all of these rumors point to, though, is the fundamental paradox of Netscape's current situation, which is that the business that has made Netscape a recognizable name and created its brand identity is not a business that it can rely on to generate substantial revenues moving forward. In part because Microsoft has been so successful at making Internet Explorer a technologically suitable alternative to Netscape, and in part because the Web browser business model was always somewhat sketchy, Netscape's browser -- which is, again, the only reason anyone paid attention to Netscape -- has become almost a loss leader, something Netscape does in order to make its corporate software business credible.

Obviously the potential market for intranet, networking, and enterprise software is huge, and even the Web-server market has a substantial upside. But the cold reality of Netscape's recent performance is that at a time when other software -- and even hardware -- companies are seeing sharp rises in revenue and even sharper rises in earnings, Netscape is seeing minuscule growth in revenue -- revenues rose just $8 million in the last quarter, less than 7% -- and precipitous drops in earnings. That makes investors' reactions to the news of a possible takeover painfully rational, since what the numbers suggest is that Netscape's greatest hope of creating shareholder value may very well be to find a buyer willing to pay a premium for its stock. Why any buyer would be willing to do that, though, is another question entirely.

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Dale Wettlaufer (TMF Ralegh), Fool One

Alex Schay (TMF Nexus6), Fool Two

Jim Surowieck (TMF Cinder, Fool Three
Contributing Writers

Brian Bauer (TMF Hoops), Fool Four
Editor