CONFERENCE CALLS

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FOOL PLATE SPECIAL

A Whole New Modem

If you blinked, you might have missed it. US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> has gone from under $50 to its lunchtime perch of $64 1/2 in a little less than a week -- a sweet 25%-plus gain. What's the story? Last Monday rumors that the communications giant had stumbled upon a faster modem sent shares hopping higher. Many have believed for a while that the road ended somewhere around the mid-30,000 baud marker. In a press release, US Robotics stressed merely that it has always maintained that current speeds could be topped and that it was continuing to work on doing just this. The rumors were a bit more specific, however. In conjunction with ROCKWELL INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %>, the company had developed dial-up modems that could go as fast as 56K -- the speed of a partial T-1 line, which many businesses rent for between $500 to $1000 a month after an expensive installation.

Although the potential of a 56K dial-up modem is exciting, the fact that the market is beside itself over its prospects is a little disconcerting. Although US Robotics is best-known for its modem products, many analysts have theorized that the relative importance of modems to the company's bottom line is slight compared to its high-market-systems business. Many published reports have suggested that as much as two-thirds of the earnings at US Robotics come from the sale of products like its Total Control hubs to Internet service providers and networking builders throughout the world. Although US Robotics has never publicly broken out its results by product, the company has not been shy in saying that it holds a 50%-plus market share in the hub area, more than two times its nearest competitor, ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %>.

A few weeks ago US Robotics plunged to below $50 as prospects of a costly modem price war with MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> crossed the radar screen of Wall Street. The current rumors of a newer, faster modem to be out by Christmas have apparently assuaged the fears of the Street in this regard. Even without the new 56K modem, however, US Robotics has a dominant share of the online communications market. Current demographic information suggests that only about 25% of computer users have 28.8 modems, implying that more than two-thirds of the market can make the jump to this speed, with the vast majority of computer users able to benefit from a mid-30.0 device. US Robotics dominates brand consciousness in this segment with the company set to duplicate INTEL'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> "Intel Inside" campaign by slapping "Communications by US Robotics" on every new computer housing one of its modems.

Even if US Robotics is forced to cut prices and profits by as much as 20%, it still will be able to make in excess of $2.80 EPS next year. Early last week at below $50, you had a company that had doubled revenues and profits for three years in a row trading at about 15 times next year's earnings. Although it has taken a rumor to remove some of this discount, the simple fact is that the fundamentals for the systems business with some help from the modem side had analysts calling for a 40% jump in earnings per share. Although below the historic 100%-plus growth, this still implied that a 25-multiple would not have been unthinkable, a multiple that would have put the stock right around $75. Hmm... maybe sometimes you can buy on the news and wait for the rumor to push the stock higher?

UPS

Semiconductor giant INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> pre-announced higher third quarter sales, saying that stronger-than-expected demand will drive sequential revenues five percent higher. The PC industry is operating in an inventory-turns environment, meaning that the focus this year is on keeping low inventories of everything from motherboards to DRAM. Intel is up $4 3/4 to $93 3/8 on the news.

Also up on the Intel news, registering gains of one point or more, are COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, up $2 to $63 3/8, SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %>, rising $1 3/4 to $54 5/8 and DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %>, jumping $2 to $81.

VERSANT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VSNT)") else Response.Write("(NASDAQ: VSNT)") end if %> is trading up $3 1/2 at $27 1/8, following through on yesterday's deal with SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> to jointly break through bandwidth barriers.

Food and tobacco conglomerate PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> is trading up $2 to $94 after a Florida judge dismissed 15 of 18 complaints against the cigarette manufacturer. The case is similar to others filed in states across the country and involves Medicaid reimbursements for ailments alleged to be caused by smoking. The ruling may also be affecting the shares of UST INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UST)") else Response.Write("(NYSE: UST)") end if %>, which makes Skoal and other smokeless tobacco products and is up $1 3/8 to $31.

Electronic component maker SOLECTRON CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> jumped $4 1/8 to $46 1/8 on earnings news. For the fiscal year, earnings per share (EPS) were up 34% and sales were up 36%, prompting Merrill Lynch to rate the company a "near-term buy."

MOLEX INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MOLXA)") else Response.Write("(NASDAQ: MOLXA)") end if %>, a multi-billion dollar maker of connectors and switches, moved up $1 1/2 to $31 1/2 on another Merrill upgrade. They feel that if it's good enough to buy for the long-term, it's now good enough to buy for the intermediate term. Merrill gave Molex the Wall Street equivalent of a triple-double -- a "near-term buy" to go along with the other "buy" ratings.

Funeral and cemetery services company SERVICE CORP INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRV)") else Response.Write("(NYSE: SRV)") end if %> has proposed a combination with LOEWEN GROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LWNG)") else Response.Write("(NASDAQ: LWNG)") end if %> which values Loewen at $43 a share. After being halted for more than an hour, Loewen opened up more than $7, and is now trading up $5 3/4 to $39 1/2. Service Corp. is down $1/4 at $20.

Mechanical-design software developer PARAMETRIC TECHNOLOGY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMTC)") else Response.Write("(NASDAQ: PMTC)") end if %> is trading up $3 1/8 at $51 7/8 on no apparent news.

DOWNS

Amidst all the hoopla surrounding the 'friendly fire' theory in the explosion of Flight 800 was Goldman Sachs initiating coverage of TRANS WORLD AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> as a "market underperformer." The market took notice, dropping the stock $1 1/8 to $10 7/8.

CP CLARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CPCL)") else Response.Write("(NASDAQ: CPCL)") end if %> got smashed after announcing that instead of meeting or besting those all-important consensus earnings estimates -- in this case, $0.28 per share -- it would post a loss for the second quarter. The manufacturer of electromagnetic and semiconductor switches and relays was dropped $1 1/2 to $10 1/2.

You can just never tell with those crazy bio-tech stocks. GILEAD SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GILD)") else Response.Write("(NASDAQ: GILD)") end if %> sank $3 1/4 to $25 1/2, after announcing that one of its drugs has been found effective in treating the influenza virus in pre-clinical testing and another had "significant anti-viral activity" against the hepatitis B virus. The stock was also highlighted as a "hot stock" in this week's Barron's.

GENERAL SCANNING INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GSCN)") else Response.Write("(NASDAQ: GSCN)") end if %> was downgraded by Hambrecht & Quist, from a "strong buy" to "buy," and plunged $3 to $10 1/2. The brokerage cited delays in shipments of the company's laser systems and third quarter charges relating to the company's August acquisition of View Engineering Inc. as reasons for the downgrade.

Even after making First Call's list of Analysts' Highest Rated Stocks, the stock of direct marketing giant GLOBAL DIRECTMAIL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %> was retreating $2 5/8 to $38 3/8 this morning.

VITALCOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VCOM)") else Response.Write("(NASDAQ: VCOM)") end if %>, which makes communications networks for health care concerns, expects to report a loss for the third quarter while consensus estimates were calling for EPS of $0.04. The company said it would likely fall short of fourth quarter estimates as well, and was punished with a 25% drop -- off $1 3/4 to $5 1/4.

A pair of earnings downgrades by Robinson Humphreys and Oppenheimer Co. has stock of UNITED CONSUMER FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UCFC)") else Response.Write("(NASDAQ: UCFC)") end if %> trading down $4 1/8 to $33. The holding company is in the business of "non-traditional" (read: risky) consumer and mortgage lending.

FOOL PORTFOLIO STOCKS

    FOOL PORTFOLIO               BORING PORTFOLIO
AOL  down $1/8 to $28 7/8       BGP  down $1/8 to $36 1/2
CHV  unch. at $62 3/8           CSL  up $1/8 to $53
COMS  up $5/8 to $52 7/8        CSCO  down $1/8 to $59 3/4
GM  up $1/8 to $49 3/4          GNT  down $1/4 to $36 1/2
IOMG  down $11/16 to $13 3/4    OXHP  down $7/8 to $47 5/8
KLAC up $9/16 to $21 1/4        PMSI  down $1/8 to $13 1/4
MMM  down $3/8 to $69 1/2       SHAW  down $13/32 to $31 19/32
T  down $1/8 to $56 5/8         SPY  down $11/32 to $68 15/32
                                TXI  down $2 5/8 to $59 3/4