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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
PC Sales Drive Online Gains
PC sales were hot in December, according to PC Data of Reston, Virginia. The Wall Street Journal's citation of PC's Data's release said that PC unit sales in December surged a wicked 41%. Before going on to what that means for PC companies themselves, let's consider what that means for companies selling complementary products.
First, America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. From its recent press release on membership numbers: "The Company said its growth from 14 million to 15 million members was the fastest addition of one million new subscribers in its history. On Christmas Day alone, more new members joined AOL than on any single day in the company's history." Causal link? You bet. Is this a reflexive phenomenon? Yes, the network effects are self-reinforcing. With more members on America Online, the service becomes more valuable at an exponential rate to the number of new subscribers that have been added to the network.
Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %>, for one, is also benefiting from this news, gaining $27 to $347 this morning. Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> gained $7 15/16 to $ 63 1/4. Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>, a company that by now everyone should realize benefits from very strong network effects, gained an incredible $5 billion or so in market cap this morning by rocketing ahead $27 1/16 to $185 15/16. CNET Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNET)") else Response.Write("(Nasdaq: CNET)") end if %> added $7 3/8 to $63 3/8 while a sort of kissing cousin, CMP Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMPX)") else Response.Write("(Nasdaq: CMPX)") end if %>, ticked down $1/8 to $18 1/8 -- which is kind of strange, because when you think of the developments I'm talking about here and when you look at how well run this company is, you would think the market would put a higher value on it. Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> gained $4 1/8 to $57, as well. Infoseek is the parent of Starwave, which produces ESPN.com, ABCNews.com, and the NBA, NFL, and NASCAR websites and is linked up with Walt Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, the de-facto parent of Infoseek itself.
Back to the PC companies. Pretty much all the OEMs are having a so-so day on the news. Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, Dell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, Hewlett Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, and Apple <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> are up slightly while Gateway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> is down a hair. Some may ascribe this to a 20% year-over-year decline in average selling prices, but as we've said here too many times to count, the PC industry is naturally deflationary. Negative 20% inflation is just nothing new for these companies and is not bad news in light of the fact that component price disinflation is just as powerful a force a force in the dynamics of the PC industry. As I posited last night, faster asset turns, price declines, and margin declines are the natural driving forces in the present economy. The sooner CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> really embraces this, the sooner its stock will move up. CompUSA was down $9/16 to $14 1/16 this morning, by the way.
Online discount broker E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> traded up $6 5/16 to $70 3/8 after joining Goldman Sachs in taking a 25% stake in Nasdaq electronic communication network (ECN) operator Archipelago for undisclosed terms. Archipelago is one of nine ECNs sanctioned by the Nasdaq to electronically match buyers and sellers outside the exchange trading system.
Dynamic random access memory (DRAM) chip maker Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> posted gains for a fourth straight day, adding $1 7/8 to $64 7/8 on numerous reports that number one DRAM manufacturer Samsung is not accepting orders for any more 64 Meg chips, sparking speculation that the volatile commodity business is recovering from the overcapacity problems and price declines that plagued DRAMs in 1998.
Christian website operator Didax Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMEN)") else Response.Write("(Nasdaq: AMEN)") end if %> rose $4 3/4 to $13 7/8 after a money manager told Business Week's iffy "Inside Wall Street" column that the company's share price may be resurrected and rise to the $20 per share range on speculation that strategic alliances with America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> and Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> are in the offing.
Financial information and transaction processor First Data Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> gained $3 1/2 to $35 7/16 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "neutral."
Set-top box maker Scientific-Atlanta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %> picked up $2 3/4 to $30 after saying it anticipates fiscal second quarter earnings will "significantly exceed" the First Call mean estimate of $0.06 per share thanks to higher-than-expected revenues. The company projects revenues of $308 million compared with estimates of $262 million. Better-than-expected domestic sales of its Explorer 2000 interactive digital set-tops and network transmission products are behind the revenue rise, the firm said.
Low-fare airline operator Southwest Airlines Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> took off this morning, rising $3 9/16 to $29 1/16 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "outperform" and boosted the firm's fiscal 1999 earnings estimate by a nickel to $1.35 per share.
Number 2 U.S. automaker Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> revved $3 3/4 higher to $65 9/16 after sharing its 1999 financial targets with the rest of the world yesterday. The company plans to achieve net margins in North America autos of 5% or greater and chop $1 billion in total costs from its operations this year. Ford also said that it will put its Lincoln Blackwood SUV/pickup hybrid into production after the concept vehicle won rave reviews in recent auto shows. Rival General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>, which is up more than 8% so far this week, tacked on another $4 3/8 to $81 3/4 this morning.
SRAM and semiconductor component foundry Taiwan Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSM)") else Response.Write("(NYSE: TSM)") end if %> moved up $2 5/8 to $18 11/16 after posting a 14.3% year-on-year increase in 1998 sales. While net profits slid 14.6% during the year, December bookings came in at record levels, leading the company to forecast better results in 1999.
General Instrument <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIC)") else Response.Write("(NYSE: GIC)") end if %> advanced $2 3/4 to $39 11/16 following yesterday's news that router maker Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> will form a voice, video, and data networking arrangement with the set-top box maker and AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> aimed at the consumer market. Cisco added another $1 5/8 to $105 1/4.
Aluminum heavyweight Alcoa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %> leapt $6 5/8 to $83 7/8 after setting a two-for-one stock split, increasing its quarterly dividend 50% to $0.375 per share, and announcing plans to repurchase 10 million (pre-split) shares.
Web portal Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> jumped $16 5/8 to $88 1/8, adding to yesterday's 8% rise on news that IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> will offer a personalized Lycos web page as the Internet start page for its Aptiva line of PCs.
Sporting goods chain Hibbett Sporting Goods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HIBB)") else Response.Write("(Nasdaq: HIBB)") end if %> fumbled $8 3/8 to $19 1/8 after it said Q4 EPS will be below Wall Street's $0.45 consensus estimate with same-store sales coming in "flat to slightly negative." Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %>, meanwhile, dropped $3/8 to $4 7/8 after warning that it anticipates Q4 earnings to be "substantially below" analysts' $0.32 per share mean estimate as comp-store sales fell 4.5%. The company blamed unseasonably warm weather and the NBA lockout for weak sales of outerwear, ski equipment, and licensed products.
Russian wireless telecommunications company Vimpel-Communications' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VIP)") else Response.Write("(NYSE: VIP)") end if %> American depositary receipts slid $3/4 to $14 3/4 after the company said the number of subscribers on its networks in Q4 was 12% below last year's figure. The company anticipates Q4 earnings will come in below Q3's $1.71 loss.
Modular and broadloom carpet supplier Interface Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFSIA)") else Response.Write("(Nasdaq: IFSIA)") end if %> frayed $1 17/32 to $7 13/32 following its announcement that Q4 EPS is seen between $0.18 to $0.22 before a restructuring charge, below the five-analyst estimate compiled by First Call. Slowing demand in the commercial interiors market, particularly in the U.K., was among the reasons for the shortfall.
Three retailers fell this morning after Credit Suisse First Boston downgraded the stocks: Talbots <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB)") else Response.Write("(NYSE: TLB)") end if %> lost $1 5/8 to $28 3/8 after being cut to "hold" from "buy," Linens 'n Things <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIN)") else Response.Write("(NYSE: LIN)") end if %> slipped $1 1/2 to $37 following a downgrade to "buy" from "strong buy," and Neiman Marcus Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NMG)") else Response.Write("(NYSE: NMG)") end if %> dropped $1 3/16 to $24 5/8 on a cut to "hold" from "buy." Talbots and Neiman Marcus reported December sales yesterday; click here for an expanded listing of results.
Enterprise software developer HTE Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTEI)") else Response.Write("(Nasdaq: HTEI)") end if %> tumbled $2 3/8 to $5 7/16 after it said the company expects a Q4 pre-tax loss of between $5.1 and $5.5 million (results haven't been finalized). Two analysts surveyed by First Call currently anticipate a $0.12 profit. The company blamed lower-than-anticipated license fee revenues, higher contracting costs caused by a tight job market, and expenses associated with a terminated stock registration in October.
Electrical installation contracting company Integrated Electrical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IEE)") else Response.Write("(NYSE: IEE)") end if %> burned off $1 1/4 to $21 9/16 after it said it will sell $150 million in convertible notes due 2009 to institutional buyers. Integrated Electrical also announced plans to buy five companies with combined yearly revenues of $66 million for an undisclosed sum.
Dairy products distributor Suiza Foods Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SZA)") else Response.Write("(NYSE: SZA)") end if %> soured $1 1/2 to $45 11/16 on last night's announcement of a planned offering of 6 million shares of common stock, about a 17% boost in the total number outstanding.
Seattle-based biopharmaceutical company Immunex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> lost $7 to $118 3/4 after Salomon Smith Barney downgraded the stock to "outperform" from "buy."
Medialink Worldwide <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDLK)") else Response.Write("(Nasdaq: MDLK)") end if %> returned $1 1/2 to $12 1/2 as Prudential Securities downgraded the provider of audio and video production and distribution services to "hold" from "accumulate." The company said yesterday that it expects Q4 EPS of between $0.16 and $0.18, below the $0.20 mean projection of four analysts surveyed by First Call.
Semiconductor wafer stepper maker ASM Lithography <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> flaked away $4 1/16 to $40 7/8 after Deutsche Bank downgraded the stock to "underweight" from a "neutral" rating.
Health and life insurer Conseco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> deteriorated $2 to $35 following a downgrade to "neutral" from "outperform" by Salomon Smith Barney.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |