DJIA             9069.60  +31.89      (+0.35%) 
 S&P 500          1115.74   +1.88      (+0.17%) 
 Nasdaq           1787.72   +4.80      (+0.27%) 
 Value Line ndx    956.29   +2.70      (+0.28%) 
 30-Year Bond   104 25/32    unch  5.79% Yield 
 

HEROES

In a further move of consolidation in the banking industry, Wells Fargo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFC)") else Response.Write("(NYSE: WFC)") end if %> ended a year of speculation by announcing this morning that it will merge with Norwest Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOB)") else Response.Write("(NYSE: NOB)") end if %>, which will make the combined company the country's seventh-largest bank holding company assuming all of the recent bank mergers are consummated. The companies expect to achieve $650 million per year in cost savings, or $0.26 per share after tax, by the third year of the combination. Both companies are high-performance banks, achieving incredibly high asset turnover of over 8% per year (taking goodwill out of the asset base for each). The merger of equals values Wells Fargo at $36 billion, or over $390 per share. Wells Fargo holders will receive 10 shares of Norwest for each share of Wells Fargo, giving Wells Fargo's shareholders 52.5% of the combined company. The premium paid for Wells Fargo, at 24 times EPS (taking goodwill amortization out of the expense base) is slight, as Norwest trades 22.2 times trailing amortization-adjusted earnings. The new company will go by the Wells Fargo name and will be based in San Francisco. Wells Fargo gained $2 1/2 to $365 3/4, while Norwest fell $2 7/8 to $36 13/16.

Tobacco and food products powerhouse Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> gained $15/16 to $39 9/16 after U.S. Senate Majority Leader Trent Lott said last Friday that the controversial bill calling for tobacco companies to cough up $516 billion has no chance of passing. "This bill in this form is not ever going to be law. Period," the senator said. The bill proposes raising the price of cigarettes by at least $1.10 a pack over five years, allowing government regulation of nicotine, and restricting advertising and marketing. Separately, Philip Morris also agreed to pay $105 million to settle shareholder class action lawsuits alleging that the company misled investors about nicotine addiction and in advance of cutting prices for premium packs in April 1993. Also boosting the stock, CS First Boston named the company "featured stock of the week" and reiterated its "buy" rating with a 12-month target price of $59 a share. Goldman Sachs also raised the company to "recommend list" from "market perform," with a $50 12-month target price.

America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> rose $1 1/2 to $84 3/4 after announcing it has acquired privately held, Israel-based Mirabilis Ltd., whose ICQ instant communications and chat technology has attracted more than 12 million registered users worldwide, for $287 million in cash. The online service provider said the purchase will be accounted for as in-process R&D in its fourth quarter ending June 30 and isn't expected to have a negative impact on operating earnings. AOL also has committed to paying up to $120 million over three years based on growth levels. The purchase not only adds a strong online messaging product to AOL's stable of Web-based offerings, it also could strengthen AOL's "Buddies Online" and "Instant Messaging" service, which seem primitive compared to ICQ technology.

QUICK TAKES: Banks climbed today on news of the merger between Wells Fargo and Norwest. BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> gained $1 15/16 to $85 13/16; Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> rose $3 1/16 to $143 5/16, BankBoston <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %> added $2 7/8 to $110; Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %> picked up $1 1/4 to $69; First Chicago NBD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCN)") else Response.Write("(NYSE: FCN)") end if %> was up $1 to $90; and Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> advanced $1 9/16 to $92 15/16. First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> gained $2 1/16 to $58 1/16 after announcing a boost to its dividend and also as the result of relief that the company would not try to follow NationsBank out west and merge with Wells Fargo... Financial and travel services company American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> charged up $4 1/4 to $109 after announcing that the Bank of Ireland will take over its payment card operations in Ireland as part of a broader plan to increase market penetration in foreign markets.

Brokerage firm Paine Webber Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PWJ)") else Response.Write("(NYSE: PWJ)") end if %> added $2 3/4 to $45 3/16 after Crain's New York Business reported that the company has had merger talks with Prudential Securities Group... Insurance giant American International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIG)") else Response.Write("(NYSE: AIG)") end if %> gained $3 5/8 to $133 15/16 after the French government rejected its bid to buy Groupe des Assurances Nationales SA... Upscale apparel and accessories company Gucci Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GUC)") else Response.Write("(NYSE: GUC)") end if %> gained $2 7/16 to $50 after announcing that Prada Group has acquired 5% of its shares... Internet content aggregator Excite Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> added another $3 1/2 to $61 3/4 after announcing it will feature news from Walt Disney's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> ESPN and ABC networks on its website.

Pharmaceutical company Merck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> gained another $1 5/16 to $121 1/2 in the wake of news that Astra AB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: A)") else Response.Write("(NYSE: A)") end if %> is looking to buy out its half of their U.S. drug making joint venture... Consumer electronics retailer Best Buy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> added another $1 3/4 to $36 3/8 after it announced that it expects Q1 earnings to be at the high end of analysts' expectations... Outdoor Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OSI)") else Response.Write("(NYSE: OSI)") end if %> surged $3 5/16 to $24 5/16 after Morgan Stanley upgraded its rating on the outdoor advertising company to "strong buy" from "outperform"... Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> soared $4 15/16 to $22 11/16 after settling an Illinois lawsuit alleging misrepresentation by the computer training school... Pen maker A.T. Cross Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATX.A)") else Response.Write("(NYSE: ATX.A)") end if %> rose $1 15/16 to $13 5/8 after announcing it expects its Pen Computing subsidiary to have $25 million in revenue this year on sales of its CrossPad portable computer notepad.

Delta Air Lines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> took off for $2 3/4 to $120 11/16 after reporting a 6% increase in revenue passenger miles in May... Home furnishings retailer Ethan Allen Interiors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> jumped $3 3/8 to $50 3/16 after Salomon Smith Barney raised its rating on the company to "buy" from "outperform" with a 12-month target price of $66... Internet service provider Mindspring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %> leapt $6 11/16 to $60 15/16 after Wheat First Union upgraded its rating on the company to "buy" from "outperform" with a 12-month target price of $70... Swedish telecommunications company Ericsson <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> connected for $1 1/16 to $30 5/8 after introducing its Phone Doubler Quick Call product, which allows Internet users to talk on the phone while simultaneously accessing the Web.

Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %>, which provides Internet domain name registration services, surged $5 1/4 to $44 1/2 after the Clinton administration said a private, nonprofit corporation should take over from the government the supervision of allocating Web addresses... Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> picked up $1 3/8 to $32 1/2 after Hambrecht & Quist raised its rating on the telecommunications company to "strong buy" from "buy"... Computer consulting services and year 2000 software company TSR Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSRI)") else Response.Write("(Nasdaq: TSRI)") end if %> rocketed up $3 11/16 to $14 after saying that estimated earnings for fiscal 1998 ended May 31 will be more than 80% higher than fiscal 1997... Damaged vehicle reseller Copart Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPRT)") else Response.Write("(Nasdaq: CPRT)") end if %> jumped $1 3/8 to $19 3/4 after reporting Q3 EPS of $0.32, up from $0.25 for the year-earlier period and higher than the analysts' mean estimate of $0.30.

GOATS

Nabisco Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NA)") else Response.Write("(NYSE: NA)") end if %>, maker of Ritz crackers and Oreo cookies, crumbled $6 1/16 to $39 7/8 after announcing a plan to streamline its production and distribution operations, realign its sales force and other staff, and discontinue certain product lines. The restructuring, which is expected to yield $100 million in annual cost savings, will result in a $406 million ($1.01 per share) charge in fiscal Q2 and an additional $118 million in charges over the next 12 months for severance benefits and facilities closing costs. Nabisco will reportedly cut 6% of its workforce in the coming months and boost advertising spending by 30% in an effort to improve its results in the second half of fiscal 1998. CS First Boston, J.P. Morgan, and Goldman Sachs turned their collective noses up at the plan and cut their ratings on the company. Nabisco parent RJR Nabisco Holdings Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %>, which will take $216 million charge in Q2 related to the restructuring, fell $1 5/8 to $26 1/2.

Oil services and drilling companies fell after crude oil prices declined today on fears that additional production cuts by Saudi Arabia, Mexico, and Venezuela will not do enough to stem a worldwide oversupply of the commodity. Last week the three countries said they would follow up an earlier reduction plan with a deal to cut oil production by another 450,000 barrels per day. Smith International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %> slid $2 9/16 to $45 1/4, Cooper Cameron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RON)") else Response.Write("(NYSE: RON)") end if %> slipped $2 1/8 to $56 3/4, R&B Falcon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> sank $1 9/16 to $25, Noble Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> fell $1 3/8 to $27 1/8, Cliffs Drilling Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDG)") else Response.Write("(NYSE: CDG)") end if %> moved down $2 11/16 to $38 1/2, Parker Drilling Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKD)") else Response.Write("(NYSE: PKD)") end if %> dropped $7/16 to $8 3/16, Transocean Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> lost $1 13/16 to $46 13/16, Global Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> decreased $7/8 to $21 7/8, Camco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAM)") else Response.Write("(NYSE: CAM)") end if %> slumped $2 9/16 to $65 3/4, and Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> declined $2 1/4 to $76 7/8.

QUICK CUTS: Chip giant Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> lost $1/2 to $69 5/16 after the Federal Trade Commission voted to sue the company for antitrust violations. The FTC alleges Intel unfairly competed with other chip makers by threatening to withhold vital technical information in order to acquire the rights to its rivals' patented technologies for free... General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> fell $1 1/4 to $74 after striking workers at its Flint, Michigan, steel parts stamping plant shut down production at a GM mid- and full-size car production plant in Orion Township, Michigan, and forced shortened work shifts at a sport utility assembly plant in Moraine, Ohio... Appliance and consumer products maker Sunbeam Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %> was burned for a $1 1/4 loss to $20 5/8 after Barron's said CEO Al Dunlap's days at the company "may be numbered," citing an analyst who called Dunlap "the most over-rated CEO in America."

Premiere Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %> slipped $5 11/16 to $15 7/8 after BancAmerica Robertson Stephens reduced its fiscal Q2 earnings estimate for the company to $0.22 per share from $0.27 per share. The firm maintained its "buy" rating on Premiere, however... Telecommunications products maker Southern New England Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNG)") else Response.Write("(NYSE: SNG)") end if %> fell $1 5/8 to $66 11/16 after being downgraded to "sell" from "hold" by Janney Montgomery Scott... Wireless communications systems manufacturer Telxon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLXN)") else Response.Write("(Nasdaq: TLXN)") end if %> fell $3 9/16 to $32 1/16 after its board rejected a $40 per share cash buyout offer from bar code transaction systems maker Symbol Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBL)") else Response.Write("(NYSE: SBL)") end if %>... Digital semiconductor devices maker Galileo Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GALTF)") else Response.Write("(Nasdaq: GALTF)") end if %> sank $3 5/8 to $11 5/8 after saying reduced demand for its products, pricing pressures, and order delays will result in a 20% to 25% sequential drop in fiscal Q2 revenues, missing analysts' estimates.

Food processor Archer Daniels Midland Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADM)") else Response.Write("(NYSE: ADM)") end if %> gave back $1 1/4 to $20 and forage and turfgrass seed developer AgriBioTech Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABTX)") else Response.Write("(Nasdaq: ABTX)") end if %> slipped $11/16 to $22 3/8 following gains late last week by both stocks on merger speculation... Contract pharmaceutical research firm Quintiles Transnational <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %> slid $1 7/8 to $50 1/8 after Salomon Smith Barney lowered its rating on the stock to "outperform" from "buy"... Medical laser systems developer Coherent Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COHR)") else Response.Write("(Nasdaq: COHR)") end if %> dropped $2 5/8 to $19 3/8 after saying on Friday that manufacturing delays for its EPIC ophthalmic laser system will lower its fiscal Q3 revenues. The company also said it will take up to $2.2 million in charges to restructure its medical group and add to its inventory reserves... Cotton apparel manufacturer Galey & Lord <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNL)") else Response.Write("(NYSE: GNL)") end if %> was ripped $6 9/16 to $18 3/16 after saying that lower sales of its corduroy and denim fabrics in the U.S. and Europe will result in fiscal Q3 earnings below the Street's mean estimate of $0.60 per share.

PC and office products direct marketer Global DirectMail Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %> slid $3 1/2 to $14 15/16 after saying that lower prices and weakness in the computer products industry will result in fiscal Q2 EPS of between $0.15 and $0.20, below the IBES mean EPS estimate of $0.34... Aluminum sheet producer Commonwealth Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMIN)") else Response.Write("(Nasdaq: CMIN)") end if %> slumped $3 1/8 to $10 5/8 after saying that "intense competitive conditions" and production problems at one of its plants will result in lower fiscal Q2 net sales and a net loss of $0.15 to $0.20 per share. Analysts had called for earnings of $0.23 per share in the quarter.

FOOL ON THE HILL
An Investment Opinion
by Alex Schay

Memory Loss

Citing anonymous people "close" to the situation, The New York Times reported on Saturday that Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> is in talks to sell its dynamic random access memory (DRAM) chip business to Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>. The article put some wind in TI's sails today as it moved $2 11/16 to $53 1/2, and lent some popular legitimacy to rumors that have been swirling around the company for the last month that it has indeed decided to completely exit the DRAM business.

With spot prices for 16 megabit DRAM on the Japanese market falling below 200 yen, or $1.42, on Friday, it's easy to see why Texas Instruments would want to limit its exposure to what has become an obscenely volatile commodity business -- exacerbated currently by overcapacity and the short-run currency needs of Asian manufacturers. However, in 1996 even when daily press reports intimated that widespread production cutbacks were occurring as a result of plummeting DRAM prices, the overall "bit" growth in 1997 ended up being 95%. Bit production remained high due to the shift from 4 Meg production to 16 Meg, and as that production trend solidified, 4 Meg prices declined. As well, today's price declines in 16 Meg DRAM have been occurring against the backdrop of an industrywide production switch to 64 Meg DRAM. Worldwide bit production in 1998 is expected to increase by roughly 75%.

Even so, Texas Instruments has probably decided that it no longer wants to ante up (make the necessary capital expenditures to stay in the game) for this particular type of no-limit poker. In the last couple of months, Texas Instruments has put some distance between it and the DRAM battlefield, walking away from its 33% stake in a memory chip joint venture with Taiwanese computer maker Acer and working its way into a brisk jog today.

TI's key message over the last couple of months has been the "differentiated" nature of its products, with 85% of the firm's revenues coming from semiconductors. Roughly 12% of that total comes from memory (10% overall), 45% comes from digital signal processors (DSP), and the remaining 43% is a combination of application specific integrated circuits (ASIC), SPARC processors, microcontrollers, LAN Chips, and standard logic chips. The company's desire to stick with markets that are driven by applications, such as wireless communications and networking, has been roundly lauded as a good growth strategy. With DSP's set to grow at a compound rate of 30% or more over the next three years and the mixed signal market growing at 20%, Texas Instruments would rather focus its capital expenditures and R&D efforts in these high growth areas.

This is not to say that the DRAM market is a low growth business -- if PCs grow at around 15% per year, some estimates forecast DRAM content per system to grow by as much as 40%. This "expanding memory requirements" thesis is the central element of the investment case for Micron Technology, which is looking to be the last of the American DRAM manufacturers (aside from IBM and if a deal is done). However, "low cost producer" status is the key to profitability here, with most players falling by the wayside -- Texas Instruments lost $0.06 a share in the fourth quarter of 1997 and in its latest quarter memory losses doubled in comparison to the prior year.

Top Ten DRAM Manufacturers (Rev.)
 
 
 
 1. Samsung     6. Texas Instruments
 
 2. NEC         7. Mitsubishi
 
 3. Hyundai     8. Toshiba
 
 4. Hitachi     9. LG Semicon
 
 5. Micron      10. Fujitsu