Wednesday, July 21, 1999
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Drug discovery tools developer ArQule Inc. (Nasdaq: ARQL) added $1 7/8 to $6 5/8 today on news of a multiyear drug research and technology licensing partnership with Pfizer Inc. (NYSE: PFE). ArQule can receive up to $117 million in total payments during the 4.5-year term of the collaboration: Pfizer will make an initial payment of $16 million for research funding and setup at ArQule's Medford, Mass., facility. ArQule will also get annual payments of between $20 and $27 million over the duration of the deal. All compounds developed through this collaboration will be owned exclusively by Pfizer. This deal is a nice feather in ArQule's cap: not only is the boost to revenue significant -- the company reported revenues of $22.2 million in all of 1998 -- but it adds another major name to the company's portfolio of partners. Already among ArQule's associations are the likes of Immunex (Nasdaq: IMNX), American Home Products' (NYSE: AHP) Wyeth-Amherst, and Johnson & Johnson (NYSE: JNJ). ArQule also reported Q2 results today, turning in a loss a penny per share worse than First Call's three-analyst consensus estimate of $0.29 per share.

Shares of biotech firm Centocor (Nasdaq: CNTO) bottled gains of $7 7/8 to $57 3/8 today after Johnson & Johnson agreed to buy the company in a $4.9 billion all-stock deal. Centocor will keep its name and management and become a freestanding Johnson & Johnson company. The deal, which given a certain trading range for J&J stock will value Centocor at $61 per stub, represents about a 23% premium to yesterday's closing price. Johnson & Johnson, known for products such as Tylenol, Neutrogena, and baby oil, is trying to focus more on drugs to boost revenue growth and earnings. By buying Centocor, the Drip Portfolio holding gets its hands on Remicade, which is approved for treating Crohn's disease but is expected also to be approved for rheumatoid arthritis, and top seller ReoPro, an anti-clotting drug Centocor co-markets with Eli Lilly (NYSE: LLY). Initial discussions between the companies had broken off in May with Centocor stock somewhat lower than it was yesterday and the buyout price the sticking point. Separately, Centocor reported second-quarter earnings of $0.13 per share, up from $0.03 a year ago and in line with estimates.

QUICK TAKES: Online services company America Online (NYSE: AOL) rose $1 7/8 to $115 1/16 today. After the bell, the company reported fiscal Q4 EPS of $0.13, $0.02 better than the market's consensus projection... Enterprise data storage system and software maker EMC Corp. (NYSE: EMC) recorded gains of $3 1/4 to $63 5/16 after reporting Q2 EPS of $0.27, $0.03 above the consensus estimate and 50% ahead of last year's results. For more on the news, please check out today's Fool Plate Special... Telecommunications software developer Lightbridge Inc. (Nasdaq: LTBG) brightened $3 3/4 to $17 1/4. The company not only reported Q2 EPS of $0.10, twice First Call's five-analyst mean estimate, but also said it opened a Brazilian subsidiary in Sao Paulo, announcing its second Brazilian client in telecommunications operator CTBC Telecom.

Competitive local exchange carrier IXC Communications (Nasdaq: IIXC) plugged in $3 1/2 to $39 3/4 after Cincinnati Bell (NYSE: CSN) agreed to buy the company in a $3.2 billion stock and assumed debt deal valuing IXC at approximately $49.42 per share based on yesterday's closing prices, a 36% premium... Web-based public records provider US SEARCH (Nasdaq: SRCH) moved up $9/16 to $14 1/2 on news of a premier merchant arrangement with portal operator Yahoo! (Nasdaq: YHOO), which will provide the company with banners, buttons, text links, and other promotions in its People Search section... Digital media operating system firm Be Inc. (Nasdaq: BEOS), which moved up $2 1/16 in its first day of trading yesterday after selling six million shares to the public for $6 each, added $11/16 to $8 3/4 today.

Online job recruiting services firm Webhire Inc. (Nasdaq: HIRE) added $3 25/32 to $11 7/16 after gaining $1 1/32 yesterday after Japanese Internet investment company SOFTBANK agreed to take a 40% stake in the company... Internet customer relationship management company Art Technology Group (Nasdaq: ARTG) jumped $6 1/16 to $18 1/16 in its first trading day after selling 5 million shares for $12 a pop. Meanwhile, cable television system operator Insight Communications Co.'s (Nasdaq: ICCI) IPO, a sale of 23 million shares for $24.50 each, resulted in a rise of $5 7/16 to $29 15/16... Web-based business resource management applications developer Clarus Corp. (Nasdaq: CLRS) rose $1 15/16 to $11 1/16 on news that strong sales of e-commerce software pulled Q2 losses to $0.15 per share, $0.02 better than expected by the two analysts surveyed by First Call.

More second day IPO action: downloadable music website MP3.com (Nasdaq: MPPP) zoomed up $35 5/16 to $63 5/16 after selling 12.3 million shares to the public yesterday for $28 each. And company and industry information publisher Hoover's (Nasdaq: HOOV) gained $8 to $22 following yesterday's rise on an offering of 3.25 million shares at $14 per... Women's fashion apparel maker Liz Claiborne (NYSE: LIZ) stitched up gains of $1 3/4 to $37 9/16 after agreeing to buy one million shares of Kenneth Cole Productions (NYSE: KCP) for $29 each, about a 4% discount to yesterday's closing price. Kenneth Cole shares nevertheless took on $2 to $32 3/16 on news of the deal, which will lead to the production of a Kenneth Cole New York collection of women's contemporary sportswear for the fall 2000 season and further new lines in the spring and fall of 2001.

Online healthcare information provider drkoop.com (Nasdaq: KOOP) improved $4 3/8 to $33 3/8 after the company issued a statement crowing about its top spot in Media Metrix's second-quarter survey of healthcare website unique user numbers... Copper, aluminum, and fiber optic wire and cable products company BICCGeneral (NYSE: BGC) was burnished for a gain of $1 3/4 to $15 7/8 after chairman and CEO Stephen Rabinowitz told investors to look for a resumption of year-over-year earnings growth in the second half of 1999 after two quarters of backward motion... Security systems maker Sensormatic Electronics (NYSE: SRM) moved up $1 1/4 to $13 3/8 after signing a contract to supply article-tagging technology to a 575-store drugstore chain in Germany. The company signed on with a 1,200-store Danish supermarket company yesterday.

Earnings Movers

Bell Atlantic (NYSE: BEL) up $5/16 to $65 1/2; Q2 EPS: $0.75 vs. $0.68 last year; estimate: $0.75

Business Objects (Nasdaq: BOBJ) up $8 3/8 to $47 1/2; Q2 EPS: $0.29 vs. $0.12 last year; estimate: $0.20

CBT Group PLC (Nasdaq: CBTSY) up $5 5/16 to $29; Q2 EPS: $0.12 vs. $0.21 last year; estimate: $0.10

Forrester Research
(Nasdaq: FORR) up $4 3/4 to $28 15/16; Q2 EPS: $0.24 vs. $0.17 last year; estimate: $0.23

(NYSE: HON) up $1 1/8 to $120 3/8; Q2 EPS: $1.09 vs. $0.95 last year; estimate: $1.07

inTEST Corp. (Nasdaq: INTT) up $3/4 to $10 1/8; Q2 EPS: $0.07 vs. $0.15 last year; estimate: $0.07

Keithley Instruments
(NYSE: KEI) up $1 11/16 to $9 7/8; fiscal Q3 EPS: $0.32 vs. $0.08 last year; no estimate

(NYSE: PEP) up $1 7/16 to $40 5/16; Q2 EPS: $0.31 (before gain) vs. $0.28 last year; estimate: $0.29

Rainbow Technologies (Nasdaq: RNBO) up $2 9/16 to $14 7/16; Q2 EPS: $0.15 vs. $0.23 last year; estimate: $0.12

Razorfish (Nasdaq: RAZF) up $6 3/8 to $39 1/4; Q2 EPS: $0.03 vs. loss of $0.05 last year; estimate: $0.03

RemedyTemp Inc. (Nasdaq: REMX) up $2 1/4 to $16 1/4; fiscal Q3 EPS: $0.45 vs. $0.38 last year; estimate: $0.45

Robert Half International (NYSE: RHI) up $1 13/16 to $; Q2 EPS: $0.37 vs. $0.34 last year; estimate: $0.37

Teradyne Inc. (NYSE: TER) up $3 15/16 to $72 15/16; Q2 EPS: $0.40 vs. $0.46 last year; estimate: $0.38

UAL Corp. (NYSE: UAL) up $1 9/16 to $64 1/16; Q2 EPS $2.86 (before one-time items) vs. $3.24 last year; estimate: $2.66


Electronic design automation (EDA) tools maker Cadence Design Systems (NYSE: CDN) slid $3 3/16 to $11 11/16 after reporting fiscal Q2 EPS of $0.08 (excluding unusual items and goodwill amortization), down sharply from last year's $0.24 and less than half of the First Call mean estimate of $0.20. The company said Q3 total revenues will come in below Q2's $264 million figure -- doubly bad considering Q2 revenues were off 16% from last year. Product revenues were down 33% to $118 million, but would have reportedly been 31% higher if the company had not advanced some revenues into future quarters under its new subscription license accounting policy. Cadence is banking that the new policy, which spreads out software revenue recognition over several accounting periods so customers can get updates without having to purchase new licenses, will increase customer loyalty over time. But right now, it's knocking the stuffing out of revenues. With any luck, year-over-year revenue growth will return by Q2 of 2000, according to the company.

Pizza Hut, Taco Bell, and KFC restaurants operator Tricon Global Restaurants (NYSE: YUM) soured $5 7/16 to $47 1/2 after posting Q2 operating EPS of $0.60, up from $0.45 a year ago and in line with analysts' estimates. However, the company said its promotional tie-in with the recent Star Wars movie was "ineffective," as KFC same-store sales rose only 2% in the period and Taco Bell's comps increased by a scant 1%. For Q3, Tricon forecasted EPS growth of 10% to 15%, down from prior estimates of 15% to 17% growth. Apparently, bizarre images of Colonel Sanders with a light saber didn't go over too well with TV viewers, and sales actually increased after the ads were pulled, according to one analyst. J.P. Morgan lowered its opinion of Tricon to "market perform" from "buy," while presumably also downgrading Tricon's advertising firm to "bucket full of trouble" from "finger-licking good."

QUICK CUTS: Polymer-based, non-absorbed pharmaceuticals developer GelTex Pharmaceuticals (Nasdaq: GELX) dropped $1 to $14 7/16 after reporting a Q2 loss of $0.56 per share, worse than last year's $0.40 per share loss and $0.02 below the Zacks mean estimate. Citing lower-than-expected sales of the company's RenaGel, Merrill Lynch lowered its near-term rating on the firm to "accumulate" from "buy"... Eye care and specialty pharmaceutical company Allergan (NYSE: AGN) slumped $17 11/16 to $92 9/16 after an FDA advisory panel voted against recommending approval for its treatment for moderate-to-severe chronic dry eye disease... Dairy products processor and distributor Suiza Foods (NYSE: SZA) spoiled $3 3/4 to $34 5/16 after saying it will record a $5 million restructuring charge in Q2 to consolidate its Midwest administration activities and close a plant in Florida.

Chip testing equipment maker Cerprobe Corp. (Nasdaq: CRPB) slid $3 11/32 to $7 25/32 after reporting a Q2 loss of $0.22 per share compared with earnings a year ago of $0.06 per share. The company said two major customers delayed orders in the quarter and forecasted that orders will remain below plan for the "next several quarters"... Pawn shop operator Cash America International (NYSE: PWN) lost $2 1/8 to $8 15/16 after reporting Q2 EPS of $0.07 (including losses from an unconsolidated subsidiary), $0.02 short of the First Call mean estimate. The company also warned that its earnings from lending operations may fall in future quarters... Tire maker Goodyear (NYSE: GT) skidded $2 7/8 to $54 3/4 after reporting Q2 EPS of $0.41, down from $1.25 a year ago and below the downwardly revised First Call mean estimate of $0.45.

Real estate services company CB Richard Ellis (NYSE: CBG) shed $3 3/16 to $16 1/4 after saying its Q2 EPS will come in at $0.16, lower than the First Call mean estimate of $0.33, due to lower sales and leasing revenues. In response to the shortfall, the company said it is streamlining its North American business in an effort to trim annual operating expenses by $11 million... Medical devices maker Boston Scientific (NYSE: BSX) sank $2 11/16 to $42 11/16 after posting Q2 EPS of $0.27, up from $0.17 a year ago and a penny ahead of the Street's mean estimate. However, ABN Amro downgraded the stock to "hold" from "buy" based on worries about the company's valuation and its stent market share... Glass products maker Apogee Enterprises (Nasdaq: APOG) fell $1 1/16 to $11 1/16 following a U.S. Bancorp Piper Jaffray downgrade to "neutral" from "buy."

Earnings Movers

Allstate Corp. (NYSE: ALL) down $1 11/16 to $34 15/16; Q2 operating EPS: $0.75 vs. $0.74 last year; estimate: $0.79

Fort James Corp.
(NYSE: FJ) down $1 3/8 to $39 15/16; Q2 EPS: $0.62 (excluding charges) vs. $0.63 last year; estimate: $0.63

Hutchinson Technology
(Nasdaq: HTCH) down $2 1/2 to $24 3/8; fiscal Q3 EPS: loss of $0.22 vs. loss of $0.47 last year; estimate: loss of $0.15

New Era of Networks
(Nasdaq: NEON) down $1 1/4 to $15 1/4; Q2 EPS: loss of $0.19 vs. earnings of $0.05 (excluding charges) last year; estimate: loss of $0.17

Progressive Corp.
(NYSE: PGR) down $7 1/8 to $133 7/8; Q2 operating EPS: $1.32 vs. $1.43 last year; estimate: $1.53

An Investment Opinion
by Louis Corrigan

Apple Opens the iBook

Imagine you're a kid stuck in some boring history class. Your best friend is down the hall stuck in some equally boring English class. Only, with your nifty new Apple (Nasdaq: AAPL) iBook notebook computers in hand, you're both having a great time. Your teachers think you're being attentive, note-taking lads, but you guys are actually battling against each other in some hot new multi-player computer game. In totally different rooms. Wirelessly. Now how cool is that?

Well, surely there are more practical uses for Apple's long-awaited iBook, an "iMac to go," introduced with great fanfare today at the New York Macworld Expo by Apple's so-called interim CEO ("iCEO") and co-founder Steve Jobs. Yet this souped-up new consumer notebook is so easily equipped with this awesome new AirPort wireless networking capability developed in association with Lucent (NYSE: LU) that one instantly thinks of how fun it will be to own one.

That's terrific news for Apple shareowners (myself included) because the company's revitalization during the last two years under Jobs owes a lot to the fact that Apple has made computers fun again. The candy-colored iMac desktops were introduced less than a year ago -- the rainbow colors just this past January -- but the company is fast approaching 2 million units sold. As Jobs rightly bragged today, the iMac has become a pervasive part of the culture. That's especially the case among teens, who are growing up with the Internet and associating the iMac with their favorite stars on shows like Dawson's Creek and Felicity.

The semiannual Macworld has become a showcase for the latest and greatest magic from the charismatic Jobs. The rumors fly so furiously before these events that just about every possible new trick has been imaginatively auditioned by the Mac faithful for weeks ahead of time. Yet, even when you pretty much know Jobs'll pull a tangerine-colored jackrabbit out of his hat, it's still an inspiration to see him do it. That's true, even if, like me, you have to watch via a live QuickTime webcast over a shaky dial-up connection that makes Jobs look nearly like E.R.'s Noah Wylie. Wait a minute, that is Noah Wylie! The actor, who played Apple's guru in TNT's goofy movie Pirates of Silicon Valley, led off the spectacle with his best Jobs imitation, talking about Apple's "insanely great new products."

Yet the main theatrics centered on those great products, the iBook and its novel AirPort feature. Jobs even tapped into a website while walking around, then passed the iBook through a hoop. See, no wires! The iBook marks Apple's first notebook for its important consumer/education market since Jobs returned to the helm and rationalized Apple's product line into four simple slots: professional desktop and notebook (the G3 lines) and consumer desktop and notebook (the iMac and now iBook, respectively). When the iBook begins shipping in volume in September, Apple will be running on all cylinders.

Though some analysts were hoping Apple would offer the consumer laptop for around $1,200, the iBook will initially list for $1,599, though my guess is that prices will drop by January. For what you get, that's still a bargain. The iBook runs on a 300 megahertz G3 processor. According to Jobs, that makes it the second fastest notebook on the planet (Apple's pro G3 line is #1) and faster than Wintel notebooks selling for over $3,000. The Wintel contingent might dispute such claims, but there's no doubt the iBook is lightning fast for the price.

The 6.5-pound computer includes a 3.2 gigabyte hard drive, a 12.1" color display that allows for 800 x 600 resolution, a CD-ROM, 32MB of memory, an ATI Rage 3D graphics card with 4MB of SDRAM video memory, a 56K modem, a 10/100 Ethernet connection, a full-sized keyboard, and a six-hour battery.

These new laptops will come in two-toned tangerine/white and blueberry/white color schemes. Instead of the boxy design of most notebooks, the iBook has curved edges, with the back of the display made of rubber for lots of roughing it in backpacks. It also features a built-in retractable handle and nifty power adapter that lets you wind up its cord "like a yo-yo."

Rumors have floated that some production problems caused Apple to miss an internal August launch target that might have allowed Apple a greater opportunity to capitalize on back-to-school buying. Still, the iBook should be a bestseller this Christmas, and the AirPort feature would seem to make it particularly compelling for the education market.

Each iBook comes equipped with two built-in antennas and an internal slot for a wireless networking card that costs an extra $99 and can be easily installed by consumers. Two computers equipped with the wireless AirPort card can, as in the above example, communicate and share files with each other without being connected to any network as long as they are located less than 150 feet apart. The technology uses radio frequencies rather than infrared signals, so there's no need for an unobstructed line of sight between devices.

What will be more typical, though, is to use AirPort-enabled Macs in connection with a $299 AirPort base station to create a wireless local area network. The base station connects to the Internet via a phone line, cable or DSL link. Up to 10 AirPort-enabled Macs within 150 feet of the base station can simultaneously and wirelessly surf different websites or access e-mail through this one base station's connection. In other words, AirPort offers a relatively inexpensive way to create a wireless network perfect for a home or classroom. And the system transmits data at an ultra-swift 11 megabits per second, which Apple claims is 10 times faster than currently popular home networking solutions.

Like last week's Q3 earnings report, today's news was terrific but filled with some question marks: Is the $1,599 suggested retail price low enough? Will the September launch hurt sales? With other PC makers joining up with Internet service providers, does Apple need a stronger Internet access strategy? Such questions probably accounted for the modest $1 3/16 gain to $54 1/16 today. But the stock has already soared nearly 70% since hitting a March low of $32.

Still, Apple continues to gain market share, growing at twice the industry rate, because it's running its operations efficiently while attracting many first-time computer buyers, who seem to care mainly about exploring the Internet and not much about who won the old Windows/Mac war. What's been nearly ignored in the mainstream financial press, though, is that Apple is still a vibrant software company, and one that's increasingly cultivating Internet software.

In his presentation today, Jobs highlighted how the Sherlock II feature of the new Mac OS 9 operating system, which will be available in October, has been transformed from something that allows you to search for items on your hard drive into a kind of Web meta-search engine. For example, Sherlock uses numerous search engines at once to generate a list of "hits" for a topic. It can then group the various links in any number of ways, all through the Mac operating system interface. Sherlock can also be used like a sophisticated "bot" for comparison online shopping.

Hot on the heels of the launch of Apple's new QuickTime 4 multimedia player and its upgraded, open-source QuickTime streaming server software, Jobs today also announced QuickTime TV, an initiative that puts Apple in the business of aggregating streaming audio and video content over the Web. New partners include Disney (NYSE: DIS) -- plus Disney subsidiaries ABC News and ESPN -- RollingStone.com, and Viacom's (NYSE: VIA) VH-1.

Analysts have wondered what Apple planned to do with QuickTime given that it's technologically competitive with Real Network's (Nasdaq: RNWK) industry-leading streaming software, and that Apple, through its partnership with Akamai Technologies, has proven capable of hosting massive Web events, such as the 23 million downloads of the trailer for the new Star Wars prequel. Today, Jobs led off his talk by indicating that QuickTime is a "core technology" for Apple and one that's important strategically.

It remains to be seen whether Jobs can really exploit Apple's rich software heritage either in ways that help expand the market for Mac hardware or in entirely new ways. Still, it's safe to say that while the sleek new hardware and the jazzy marketing have attracted most of the attention, Apple has some interesting software assets that the market is valuing at basically zero. Jobs wasn't shy about reminding us of that today.


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