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Wednesday 9/15/99

Closing Market Numbers

DJIA           10801.42   -108.91    (-1.00%) 
S&P 500         1317.97    -18.32    (-1.37%)
Nasdaq          2814.17    -54.12    (-1.89%)
Russell 2000     436.33     -1.91    (-0.44%)
30-Year Bond  100 10/32     +7/32  6.10 Yield

Today's Market Movers:

UPS

Skippy peanut butter and Hellmann's mayonnaise maker Bestfoods (NYSE: BFO) gobbled up $4 3/16 to $53 1/8 despite denying a Wall Street Journal report that it is in merger talks with fellow food products company H.J. Heinz (NYSE: HNZ). "No significant acquisition or combination discussions are in progress," Bestfoods said in a statement. Heinz advanced $1 7/16 to $44 5/8 but kept mum on the merger report.

Voice-over-IP (Internet Protocol) hardware and software developer e-Net Inc. (Nasdaq: ETEL) soared $3 1/2 to $6 1/2 after competitive local exchange carrier (CLEC) IXC Communications (Nasdaq: IIXC) agreed to jointly develop and market Internet telephony services with the firm's ZeroPlus.com unit. IXC also will be able to acquire up to 20% of e-Net's outstanding shares and an amount of additional new shares to be determined by a number of factors, the company said.

Embedded systems software and technology provider NETsilicon Inc. (Nasdaq: NSIL) jumped $5 3/8 to $12 3/8 in its first day of trading after selling 5.25 million shares in an initial public offering at a price of $7 per share. Of the shares sold, some 2 million were offered by selling stockholder Osicom Technologies (Nasdaq: FIBR).

Genomic screening and assays technologies developer Aurora Biosciences (Nasdaq: ABSC) lit it up for a $3 1/4 gain to $15 5/16 today after BancBoston Robertson Stephens analyst Michael King raised his rating on the firm to "strong buy" from "buy," citing "current valuation, recent positive developments, and upcoming drivers."

Broadband data and communications provider Network Plus Corp. (Nasdaq: NPLS) added $1 5/8 to $18 11/16 after announcing that it is installing its voice-over-DSL (digital subscriber line) technology in 20 locations and at Brown University. The company plans to install the service in an additional 100 locations by Q1 of 2000.

DOWNS

Digital set-top boxmaker General Instrument Corp. (NYSE: GIC) slid $3 1/4 to $47 1/4 after agreeing to be acquired by Motorola (NYSE: MOT), as had been anticipated. Motorola, which lost $6 9/16 to $86 5/8 today, will pay roughly $11 billion in stock for the company in a deal that is expected to "modestly" dilute EPS through 2000.

Pan-Asian Internet portal China.com (Nasdaq: CHINA) hit the Great Wall for the second day in a row, falling $10 5/8 to $52 5/8 on reports that a high-ranking Chinese government official commented that foreign investment in the country's Internet and telecommunications should be banned. The company said it is "aware of the speculation that has resulted from those statements" without elaborating further.

Information technology consultant Cambridge Technology Partners (Nasdaq: CATP) was beaned for a $1 9/16 loss to $13 1/2 after Lehman Brothers cut the firm's fiscal 2000 earnings estimate to $0.70 per share from $0.87 per share, due to expected investments by the company in its Internet consulting business.

Pharmaceutical contract research organization PPD Inc. (Nasdaq: PPDI) slipped $4 1/32 to $14 27/32 on news that President and COO Thomas D'Alonzo will retire next month. The stock was also hit by worries that PPD's business will be disrupted as Hurricane Floyd heads toward the firm's offices in Wilmington and the Research Triangle area of North Carolina.

Supply chain management software provider Manugistics Group (Nasdaq: MANU) was knocked down $1 15/16 to $10 13/16 after reporting a fiscal Q2 loss of $0.13 per share, not quite as bad as the loss of $0.23 per share reported a year ago but shy of the earnings of $0.02 per share expected by analysts surveyed by First Call. The company also got around to telling investors that CFO Peter Repetti quit two weeks ago to "pursue other opportunities."

Today's Top Stories:

Microsoft Drawn to Visio
By Richard McCaffery (TMF Gibson)

It may be small potatoes for a Rule Maker like Microsoft (Nasdaq: MSFT), but the company's proposed $1.3 billion stock purchase of design software firm Visio (Nasdaq: VSIO) should add a sharp tool to its Business Productivity Group.

Headed by Bob Muglia, Microsoft's productivity group is one of the company's five major business units and manages the development of critical products such as the Microsoft Office suite. That's where Visio fits in.

Founded in 1990, Visio's graphics software allows nonspecialists to design drawings that range from organizational charts to advanced schematics for electrical engineers. Visio has had tremendous success overseas. Its products are available in 12 languages and 45 countries, and international sales represented 41% of its $166 million in sales last year. Customers include Hewlett-Packard (NYSE: HWP) and BP Amoco (NYSE: BPA).

Visio's products are all based on the Windows operating system. The company has worked closely with its Seattle-based neighbor for several years, realizing the importance of making its products compatible with popular applications such as PowerPoint and Excel. Microsoft also competes with Visio, at least on a small scale. Its Visual Studio product, part of Microsoft Office, offers users some of the same design capabilities as Visio.

Over the years, Microsoft has developed as much skill acquiring competitors as it has crushing them, and since design software is not exactly what you'd call a strategic focus for Microsoft, the acquisition makes good business sense. Why spend a fraction of your $3 billion research and development budget designing niche software when you have a collaborative relationship with a competitor right up the street?

Besides, the competitor happened to be trading at a discount to its 52-week high. Shares of Visio tumbled $10 to less than $30 per share in July when the company pre-announced lower than expected earnings for the third quarter because of slow sales related to a soon-to-be-released product. In August it released Visio Standard 2000, an expanded version of one of its workhorse products. This application will be followed in the coming months by the release of a full line of upgraded products, which should spur sales. Microsoft's worldwide distribution channel should help with this, to say the least.

As far as the size of the market for design software, it could get a lot bigger if Visio achieves its goal of making its products the industry standard. Microsoft has some experience with this. Of the roughly 120 million businesses that use Microsoft Windows worldwide, Visio estimates 28% create at least six drawings per month. That works out to a target audience of about 34 million businesses, and Visio has just 3.2 million units installed worldwide.


FOOL PLATE SPECIAL An Investment Opinion
Turbulence at US Airways Intensifies
By Warren Gump (TMF Gump)

US Airways (NYSE: U) filed a letter to analysts and investors with the SEC yesterday after the markets closed, warning that operational problems would cause the airline to post a loss during the current quarter and hurt the next quarter as well. This quarter's expected loss falls well shy of the $0.84 per share profit that analysts were expecting and the $1.51 earned in last year's third quarter. The company and analysts were already anticipating reduced second half profit because of a slowdown in scheduled service growth, customer service problems, and rising oil prices.

An unusually high number of flight cancellations exacerbated the above-mentioned problems to create the company's loss this quarter. In its SEC Filing, the company said that an average of 130 flights a day were canceled during July and August, representing 6.4% of its flight schedule. No explanation for these flight cancellations is given, but it is well known that the company has had significant labor problems, which could have sparked a worker slowdown. This speculation is supported by the company stating, "We firmly believe that once our major labor negotiations are completed, our operational difficulties will largely be behind us."

Canceling flights and losing immediate revenues (many customers immediately move to another airline to get to their destination in a timely fashion) is one issue. Far more damaging -- and lingering -- is the tarnished reputation such problems bring. If you've been on a couple of US Airways flights that were canceled for non-weather-related reasons, you're probably going to avoid booking your next flight on the airline if another reasonable choice is available.

The current flight cancellation problems are not the first major glitches endured by US Airways passengers recently. Over the past year, they have also been burdened by problems caused by the conversion to a new information system. I can personally attest to these issues. The airline canceled one of my flight reservations this spring, despite the fact that it had issued me a physical ticket and I had given an agent a travel voucher to pay for the trip. Those types of experiences quickly erase any loyalty that has been built up in the past -- and they apparently affected lots of people.

Airlines are one of the most cyclical of the cyclical stocks. Due to the high fixed costs of airplanes, labor, and support services, their profits shift dramatically on relatively slight fluctuations in revenues. To achieve success in such a market, it is imperative to have strong management that can quickly address problems that crop up. Even with ideal leadership, the industry's lackluster history of value creation makes it questionable whether a buy and hold investor should consider any industry player (Southwest Airlines (NYSE: LUV) being a possible exception). If a management team in such a volatile industry can't successfully fly through a buoyant economy, though, just think how bad the ride might become during less-than-ideal conditions.

The company did try to throw out a bone to investors, announcing plans to repurchase an additional $500 million worth of stock as "a reaffirmation of [the US Airway's Board of Director's] belief in the company's long-term prospects." I'll let the company spend its money rather than my money on US Airways stock.

More of Today's Best:

FOOL ON THE HILL An Investment Opinion
Wise Journalist Confesses He Blew It
By Louis Corrigan (TMF Seymor)
-- Stop the presses! We've got breaking news...
FULL STORY >>

Boston Scientific A Bummer
By Dave Marino-Nachison (TMF Braden)
-- News that medical devices maker Boston Scientific (NYSE: BSX) was set to reintroduce its original Rotablator system to the market on a limited basis later this month didn't help the company's shares today, as the stock lost some 20% of its market value.
FULL STORY >>

Dime Bancorp Jumps Into the Hudson
By Brian Graney (TMF Panic)
-- Trying to carve out a business niche for themselves within the rapidly changing financial services field, Dime Bancorp (NYSE: DME) and Hudson United Bancorp (NYSE: HU) today decided to combine their operations to form the largest regional banking firm in the mid-Atlantic. The $3.6 billion transaction is being termed as a merger of equals, with each Dime share to be converted into 0.585 of a share of the combined company and each Hudson share to be exchanged on a one-for-one basis. The new Dime United Bancorp will operate 330 branches in New York, New Jersey, Connecticut, and Pennsylvania. It will sport $32 billion in total assets.
FULL STORY >>

Shopping Is Boring
By Dave Marino-Nachison (TMF Braden)
-- The simple act of exchanging money for goods and services has never been enough for American shoppers. If it were, would there be a need for television shopping networks that consumers call so they can tell the people they've just overpaid for baseball cards how excited they are to be a part of history -- on national television? Doubtful.
FULL STORY >>

BREAKFAST WITH THE FOOL
Oracle Rolls, Wall Street Waffles
By Richard McCaffery (TMF Gibson)
-- Database software maker Oracle (Nasdaq: ORCL) reported last night that net income for its fiscal first quarter grew 21% to $237 million, or $0.16 per share, compared to net income of $195 million and earnings of $0.13 a year ago. The Redwood Shores, California company's performance matched the Zacks mean estimate, but analysts had hoped for earnings closer to $0.20 per share, which explains why the stock fell in overnight trading. While the drop in share price may reflect what some analysts think, it doesn't reflect the company's fundamentals.
FULL STORY >>