Friday, January 2, 1998
DJIA:            7965.04    +56.79       (+0.72%) 
 S&P 500:          975.00     +4.57       (+0.47%) 
 Nasdaq:          1581.53    +11.18       (+0.71%) 
 S&P 600 SmallCap  181.00     -0.16       (-0.09%) 
 30-Year Bond         104   +1 8/32   5.84% Yield 


Shares of digital signal processor (DSP), dynamic random access memory (DRAM) chips, and consumer electronics manufacturer Texas Instruments (NYSE: TXN) gained $2 3/4 to $47 3/4 on a nebulous array of factors, including possibly the "January effect" and a mention in Business Week's "Inside Wall Street." "Market Maven" Joseph Battipaglia, investment strategist at Gruntal & Co., picked the company as one of his favorites to come back this year from a fourth quarter slump. Battipaglia reasons the company will see a 21% increase in 1998 revenues, due in part to a Fed rate cut, growth in Asian consumption, and the fact that Asia only accounts for 20% of revenues. One problem with that thesis is that it's not just final demand that determines a firm's economic well-being. The problem with Asia is supply, which can be blamed on everything from government subsidies to targeted industries to companies driving for market share in semiconductor production instead of profits. While Asian final demand is certainly important for Texas Instruments, the supply-side factors for the semiconductor industry are every bit as important and should play into one's investment outlook as much as demand does.

PC-related stocks got a boost today as opinion swings toward the belief that the Christmas season was a good one for PC sales and that even if the PC industry grows at the low end of its historical 15-20% range in 1998, things won't be as bad as the bears have foretold. Compaq (NYSE: CPQ) gained $3 to $59 1/2, Apple Computer (Nasdaq: AAPL) added $3 1/8 to $16 1/4, Gateway 2000 (NYSE: GTW) tacked on $1 7/16 to $34 3/16, and computer integrator Vanstar (NYSE: VST) rose $1 3/8 to $12 11/16 following an excellent sales report last week from computer superstore and now box-maker CompUSA (NYSE: CPU). Disk drive stocks gained more ground as they try to pick themselves up from the floor. Quantum (Nasdaq: QNTM) jumped $2 11/16 to $22 3/4, Seagate Technology (NYSE: SEG) rose $1 3/8 to $20 5/8, and Western Digital was up $1 1/4 to $17 1/4. DRAM maker Micron Technology (NYSE: MU) picked up $1 15/16 to $27 7/8; LSI Logic (NYSE: LSI) moved $1 7/8 higher to $21 1/2; Advanced Micro Devices (NYSE: AMD) bounced $1 9/16 to $19 5/16; and Intel (NYSE: INTC) advanced $2 3/8 to $72 5/8.

QUICK TAKES: Integrated steel producer National Steel (NYSE: NS) rose $1 1/16 to $12 5/8 after Goldman Sachs raised its rating on the company to "market perform" from "market underperform"... Cellular telephone manufacturer Nokia (NYSE: NOK.A) gained $4 3/8 to $73 7/8 followed by liquid crystal display (LCD) maker Three Five Systems (NYSE: TFS), which picked up $1 1/2 to $18... Datacom equipment maker ACT Networks (Nasdaq: ANET) added $1 1/8 to $8 7/16 after reporting that it has received a $1.1 million order from India Telephone Industries... Information systems integrator Brock International (Nasdaq: BROC) rose $1 to $4 1/2 after announcing that it expects to report revenue over $4.7 million in its fourth quarter, which the company expects to translate into positive per-share earnings.

Information handling systems manufacturer Bell & Howell (NYSE: BHW) gained $2 to $26 3/16 after New York investment firm Fir Tree Partners and one Jeffery Tannenbaum filed a 13-D report revealing that their stake in the company had surpassed 5% and that they will contact other shareholders about strategic alternatives for enhancing Bell & Howell's shareholder value... Specialty chemicals and pigments maker NL Industries (NYSE: NL) added $1 1/8 to $14 3/4 after announcing on Tuesday that it has agreed to sell its Rheox unit for nearly half a billion dollars to British chemicals and animal feeds company Harrisons & Crosfield... Harold's Stores (AMEX: HLD) zoomed $1 1/16 to $7 7/8 after the company announced a 5%, or 1-for-20, stock dividend, which doesn't increase the wealth of shareholders one iota since the company pays no regular cash dividends (according to S&P Comstock).


AT&T (NYSE: T) slid $2 9/16 to $58 3/4 after a Federal court struck down as unconstitutional a provision of the 1996 Telecommunications Act that restricted the ability of Regional Bell Operating Companies (RBOCs) to enter the long-distance telecom market. The decision was handed down by U.S. District Judge Joe Kendall on New Year's Eve in a lawsuit brought by SBC Communications (NYSE: SBC), which is one of three RBOCs that has seen prior attempts to market long-distance service to their customers dashed. The ruling, far from the final word, provides ammunition for the RBOCs in future attempts to elicit sympathy from regulators. The U.S. government intends to appeal the decision. Under the 1996 act, RBOCs are required to pass a 14-point checklist (established by the FCC) proving that their local markets have been opened to competition (i.e., allowing long-distance providers to market local service). The promise of the 1996 law has not been fulfilled largely as a result of provisioning problems in the network -- connecting competitors requires identifying, monitoring, and billing competing traffic -- as well as the portability of local phone numbers. The inability of RBOCs to prove that they have lost market share as a result of connecting competitors to their networks has hampered approval.

High-stakes bingo network company Multimedia Games (Nasdaq: MGAM) fell $3 1/2 to $11 1/16 after the company announced that the FBI raided its headquarters on New Year's Eve, disrupting play across the company's bingo network. The U.S. Attorney's office for the Northern District of Oklahoma conducted the search in conjunction with the FBI on grounds that Multimedia's "MegaMania" machines were actually casino games that need to be regulated by the state -- which requires agreement between the Indian reservation and the state in which it operates. Multimedia Games maintains that MegaMania is a bingo game, which is legal in Oklahoma without approval from the state. While the company was aware of federal concern over the nature of its operations, company officers said they were shocked that the FBI would take this action, as well as seizing player stations at two bingo halls operated by the Cherokee Nation and the Senaca Cayuga tribe. Despite the raid, 90% of Multimedia's electronically linked game stations are up and running again, with the company claiming that the temporary shutdown will not affect earnings going forward.

Renters Choice (Nasdaq: RCII) dropped $2 1/2 to $18 after announcing late Wednesday that the rent-to-own company is being sued in New Jersey state court by plaintiffs alleging that the company violated the state's Consumer Fraud Act and Retail Installment Sales Act. The class action lawsuit covers activities of the company's 17 stores in New Jersey over a six-year period. Renters Choice just finished settling a similar consumer fraud lawsuit in Wisconsin for $2.9 million. Rent-to-own customers invariably pay a weekly or monthly fee in order to use a piece of furniture or a consumer electronics item. The customer can return the item at any time or take ownership (after paying 2 to 3 times more than the typical retail price). At issue is not the fact that these customers ultimately pay exorbitant prices, but that they are not told this fact from the outset by sales staff.

QUICK CUTS: Kaiser Ventures (Nasdaq: KRSC) was trashed for a $1 3/4 loss to $10 1/4 after it announced that a San Diego Superior Court has tentatively ruled as inadequate the company's environmental impact report for proposed uses of its Eagle Mountain Landfill Project. The company said it expects to receive a final ruling within 90 days... Natural gas distributor Atmos Energy Corp. (NYSE: ATO) lost $1 7/16 to $28 13/16 after Merrill Lynch lowered its near-term rating on the company's stock to "neutral" from "accumulate" and its long-term rating to "accumulate" from "buy"... First Security Corp. (Nasdaq: FSCO) dropped $2 3/4 to $39 1/8 after the bank was cut by Keefe, Bruyette & Woods from "attractive" to "market perform."

Steel company Huntco Inc. (NYSE: HCO) slid $1 3/16 to $15 11/16 after the company was downgraded by Goldman Sachs to "market perform" from "market outperform"... NACT Telecommunications (Nasdaq: NACT) lost $1 1/4 to $16 1/2 after announcing that approximately 55% of its common stock will be purchased by World Access, Inc. (Nasdaq: WAXS), making the company a majority-owned subsidiary of World Access.

An Investment Opinion by Randy Befumo

Can Sybase Turn It Around?

Sybase (Nasdaq: SYBS) was creamed for $3 3/8 to $9 15/16 after the second largest publicly held vendor of database software announced that fourth quarter earnings would not meet current estimates. Sybase warned early this morning that due to a shortfall in sales in North America earnings would fall below the $0.12 per share analysts were expecting. Instead, Sybase will report near break-even results, losing as much as $0.07 per share or earning as much as $0.02 per share. Revenues will range between $245 million and $250 million. Investors disappointed by this news began selling from the get go, pushing Sybase down as low as $8 7/8, striking levels not seen since the company came public in 1991.

Once one of the shining stars of the software universe, Sybase has long been dogged by difficulties in executing and hitting projected sales targets. Shares blew up in 1995 when Sybase revealed that its policy of booking contracts with implementation dates further and further out had eaten up several years worth of revenues, leaving the company unable to grow sales. Sybase went as low as $19 7/8 in April of 1995 after investors fully digested the news, but recovered a bit over the next few months. As one of the few software companies with annual revenues measured in the billions of dollars, the stock almost immediately gained a contingent of supporters who bought in waiting for a turnaround. Unfortunately for these investors, Sybase has yet to really return.

Although Sybase proponents are not as vociferous or fanatical as investors in companies like Apple Computer or Novell, there are some fairly big names amongst the ranks. Soros Capital Management owned 2.25% of the outstanding shares as of September of 1997, or 1.796 million shares. In fact, it was the Soros purchases that ignited a midyear rally in Sybase shares and pushed them up to their 52-week high of $23 5/8. Soros Capital Management is far from the only institutional money manager to be burned today, given that about 49.8% of the company's shares are owned by institutions. It was these institutions that drove the immense volume seen during the otherwise tepid trading day, as Sybase shares traded 6.3 times normal volume.

At a time when Sybase's chief competitor Oracle (Nasdaq: ORCL) is having difficulties in Asia, for the company to report that it is having trouble selling product in North America confirms the worst fears of database industry watchers. Although a lot of ink was describing Oracle as a victim of East Asian economic turmoil, the company's reference in its quarterly conference call to business dropping with large telecom companies implied that Oracle's problems went far beyond currency translations. Sybase's negative news confirms this and has lead investors to conclude that overall the database market is slowing down. Rather than getting the newer better database every year, more and more large customers appear to be upgrading on a less frequent basis, a change that directly impacts the bottom line at these companies.

With the database business apparently slowing, Sybase's prospects of executing a turnaround have suddenly become a lot less likely. The company has not really grown revenues since the second quarter of 1995, when Sybase booked $240 million in revenues. Since then, revenues have ranged between $210 million and $270 million with minor fluctuations from quarter to quarter. If this is how Sybase performed in a better market for database technology, it is unclear -- despite the company's "new open system" Adaptive Component Architecture database -- that it will be able to post improved financial results. It is more likely that Sybase will join its peer Informix in a race to see which company will close the month lower.


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