FOOL PLATE SPECIAL
An Investment Opinion by Alex Schay

Qualcomm Falls Flat

Wireless phone service provider, equipment maker, and related infrastructure supplier Qualcomm Inc. (Nasdaq: QCOM) shocked investors last night after announcing that it expects to report flat Q2 EPS in comparison to its 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. Investors in Qualcomm 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 to the 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 further reported 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.

An analyst at BT Alex. Brown summed up the majority opinion in the analyst community on the matter this morning, "Last month, they said Korea's manageable and now they say they have a problem. They've ruined their credibility." This response seems a natural one, but begs the question, whose credibility has been ruined? The company that makes a forecast, or the investment community that embraces the optimistic assessments without scrutiny. Fool me once, shame on you, fool me twice, shame on me. The fundamental issue that this raises is the time and resource constraints (as well as institutionalized perceptions) that prevent independent verification of information. The simple fact is that investors (analysts included) are inundated with information and the urge to quickly classify data is intense. The dissonance in our brains is ameliorated when we, ahhhhh, file those "conclusions" away, because lingering uncertainty hurts. As more people pile on and agree with these conclusions (the accepted view), it becomes harder and harder for individuals to go against the grain.

We could condemn this behavior strongly, but that would be silly because we all are susceptible to it. However, acknowledging these inclinations iterated in numerous ways, "the herd instinct" or "jumping on the bandwagon," helps in attempting to understand our investing behavior. The soul searching prompted by the Oxford Health (Nasdaq: OXHP) affair highlights precisely this issue. The toe-the-line groupthink of some analysts (where only a lone dissenting voice had issued a "sell" rating on the firm) led the popular press to decry the cozy relationships between companies and the analysts that follow them, as well as the need to maintain a critical view. However, it is also this situation that creates inefficiencies -- when what is broadly accepted turns out to be false and where a select few that do a sufficient amount of legwork can profit. Independent verification, individual investors, and Phil Fisher's "What 'Scuttlebutt' Can Do" come to the fore.

For example, Anne Anderson, president of Atlantis Research, didn't accept what Oxford Health was telling the analyst community. She painstakingly pored over New York State Insurance Department Records, and with calculator in hand she found that Oxford's membership roles were climbing, but the number of hospital days per patient was declining. The disparity led to suspicion, and a short position in the equity. The obvious shortcoming of this example is that the work is painful, time consuming, and often not fruitful. And in the case of Qualcomm, phone calls to South Korea are expensive.

UPS

Broadband Technologies (Nasdaq: BBTK) gained $1 9/16 to $6 9/16 after announcing a development pact and original equipment manufacturer (OEM) agreement with Lucent Technologies (NYSE: LU) 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. Lucent benefits from the agreement because there's little possibility of developing every element of its huge portfolio of intellectual property, so it gets development partners to take care of that, with Lucent participating on the upside if development efforts are successful.

The Donald's been saying it for months -- if the equity value of Trump Hotels and Casino Resorts (NYSE: DJT) doesn't improve, he's going to buy it out or arrange some other way to improve the situation. 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 this morning. The company announced that it has 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.

Telecom test equipment manufacturer IFR Systems (Nasdaq: IFRS) jumped $3 1/2 to $20 1/4 after announcing an agreement to acquire test equipment manufacturer Marconi Instruments from General Electric Co. Plc. for $107 million in cash. Marconi generated $110 million in sales over the last twelve months and is already a distributor of IFR products.

Unifab International (Nasdaq: UFAB) rose $1 7/8 to $19 after the manufacturer of oil and gas platforms and equipment said it will acquire Professional Industrial Maintenance (PIM), which adds to Unifab's drilling rig maintenance services. Professional Industrial's access to the Gulf of Mexico via a canal with a depth of 40 feet gives the company a prime service facility on the Louisiana coast. Unifab will also invest in the facility to handle repairs and upgrades of deepwater drilling platforms.

Canadian National Railway (NYSE: CNI) added $2 3/4 to $56 3/16 on revealing that it's in talks to acquire Illinois Central (NYSE: IC) "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. (NYSE: PRD) gained $2 3/16 to $45 3/4 after announcing a set of product initiatives that includes marketing a digital camera manufactured by Sony as well as a sub-$20 one-time use camera that produces instant prints.

EARNINGS MOVERS

Open Market (Nasdaq: OMKT) up $1 3/4 to $11 1/2; Q4 EPS: ($0.09); Estimate: ($0.13)

Business Objects (Nasdaq: BOBJY) up $1 to $12 3/4; Q4 EPS: $0.10; Estimate: $0.07

Pixar Animation Studios (Nasdaq: PIXR) up $3 1/4 to $33 1/4; Q4 EPS: $0.09; Estimate: $0.01

Tekelec (Nasdaq: TKLC) up $2 15/16 to $38 5/16; Q4 EPS: $0.31; Estimate: $0.23

DOWNS

Simulation Sciences (Nasdaq: SMCI) plunged $5 7/8 to $7 3/8 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. (Nasdaq: SYSF) dropped $1 7/8 to $3 5/16 after saying 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 for earnings of $0.05 per share. The company said delayed purchasing decisions by Asian computer manufacturers, which accounted for 36% of the company's revenues in the first nine months of the year, were the major cause for the loss. Long implementation cycles for its SystemWizard software and high turnover in its sales force were also blamed.

Surface acoustic wave (SAW) wireless technology provider Sawtek Inc. (Nasdaq: SAWS) was carved for a $7 1/8 loss to $23 1/2 after it said a major Korean customer has requested a partial cancellation of its orders from the company for the first and second quarters of this year. Business from U.S. and European customers remains strong, however, and accelerated shipments to these regions may offset the near-term losses from the Korean cancellations, the company said.

Business consulting firm Intelligroup Inc. (Nasdaq: ITIG) fell $3 3/4 to $15 7/8 after reporting Q4 EPS of $0.07 compared to $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. The company's CFO also announced that he would leave the company before the end of the month.

Casket maker York Group (Nasdaq: YRKG) was buried this morning, falling $7 3/16 to $15 7/8 after deathcare services company Service Corp. International (NYSE: SRV) 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. (Nasdaq: ORTL) rang up a $1 5/16 loss to $11 3/4 after reporting that operations will be "near break-even" due to the effect of the Asian financial crisis. The company expects the softness will continue into the fourth quarter. First Call was expecting Q3 earnings of $0.11 per share.

Boom! Rocket propellant manufacturer OEA Inc. (NYSE: OEA) fell from the sky, dropping $3 9/16 to $25 3/16 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.

Electronic connector maker Berg Electronics Corp. (NYSE: BEI) shorted out for $2 7/16 to $25 5/8 after buyout firm Hicks, Muse Tate & Furst said it would sell about 9.9 million shares of Berg stock in a secondary offering via Donaldson, Lufkin & Jenrette at a price of $25 per share, or about three bucks lower than Berg's current stock price.

Online grocer Peapod Inc. (Nasdaq: PPOD) was slipped $1/2 to $6 after reporting a Q4 loss of $0.25 per share compared to a loss of $0.26 per share a year ago. The First Call mean estimate called for per-share loss of $0.23.

Semiconductor and peripherals supplier Bell Microproducts (Nasdaq: BELM) fell $19/32 to $8 1/8 after reporting Q4 EPS of $0.01 versus $0.27 a year ago. The results, which missed the First Call mean estimate of a nickel per share, were attributed to weaker orders from disk drive makers.

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Dale Wettlaufer (TMF Ralegh), Fool One

Alex Schay (TMF Nexus6), Fool Two
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Brian Bauer (TMF Hoops), Fool Three
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