Ups and Downs Plus Top News (QuickNews) December 20, 1999

Motley Fool QuickNews

Monday 12/20/99

Closing Market Numbers

DJIA          11144.27  -113.16     (-1.01%)    
S&P 500        1418.09    -2.96     (-0.21%)
Nasdaq         3783.87   +30.81     (+0.82%)
Russell 2000    467.19    +0.98     (+0.21%)
30-Year Bond  95 28/32   -26/32   6.44 Yield

Today's Market Movers:


Database software giant Oracle (Nasdaq: ORCL) gained $5 5/8 to $96 5/16 after setting a two-for-one stock split. The company also announced that its Oracle Technology Network developer portal is adding new members at a rate of 1,000 per day.

Genome Therapeutics (Nasdaq: GENE), which uses its own proprietary analytical tools to identify and characterize genes, jumped $4 to $10 after reporting that it has received an unquantified milestone payment from drug developer Schering-Plough (NYSE: SGP). Schering-Plough is working with the company to discover new therapeutics for treating asthma.

Automated semiconductor wafer fabrication equipment maker Novellus Systems (Nasdaq: NVLS) moved up $28 13/32 to $113 9/16 after saying that a "significant" rise in bookings will lead to Q4 EPS "substantially" above the $0.65 previously expected by analysts surveyed by First Call. Revenues are expected to be $190 million in Q4 and $500 million in the first half of 2000. Additionally, the company announced a three-for-one stock split.

Internet and broadband access provider Juno Online Services (Nasdaq: JWEB) moved up $12 5/8 to $29 after adding free Web access to its existing free dial-up e-mail service. The company also said that it will launch an external ad campaign early next year aimed at expanding its user base.

International and national long distance service provider STAR Telecommunications (Nasdaq: STRX) was launched skyward for a $2 gain to $8 7/8 after agreeing to merge with international end-to-end communications firm World Access (Nasdaq: WAXS) in a deal valued at about $650 million in stock, although World Access may decide to pay up to half of the purchase price in cash.


Low-cost auto insurer Progressive Corp. (NYSE: PGR) skidded $5 15/16 to $71 1/16 after warning that it will post an underwriting loss for Q4, resulting in earnings "significantly" below the $0.83 per share expected by analysts surveyed by First Call. The company blamed larger than expected claims during the period, including $7 million in losses from Hurricane Irene this fall.

Records and document management outsourcer Lason Inc. (Nasdaq: LSON) shed $11 7/8 to $11 1/16 after warning that a Y2K-related spending slowdown by clients will lead to Q4 EPS roughly 31% to 38% below the $0.61 that the firm said analysts had been anticipating. The company also said it will discontinue certain non-Internet enabled business areas as part of a repositioning of the firm, which will result in fiscal 2000 operating EPS $0.60 to $0.80 lower than previous estimates. At least six analysts downgraded the stock today.

Diversified technology and manufacturing company Honeywell (NYSE: HON) slid $7 1/8 to $56 5/8 after agreeing to acquire security and fire system company Pittway (NYSE: PRY) for about $2.2 billion in cash and debt, bolstering Honeywell's Home & Building Control business. The deal, which is expected to close in the first quarter of 2000, will be neutral to Honeywell's earnings in 2000. Pittway surged $15 7/8 to $44 7/8 on the news.

Medical sterilization equipment maker STERIS Corp. (NYSE: STE) stared at a $2 1/2 loss to $10 after saying a Y2K-related order slowdown for its capital equipment will lead to fiscal Q3 revenues of $200 million and EPS of $0.15 to $0.17, missing the First Call mean estimate of $0.28.

Railway Burlington Northern Santa Fe (NYSE: BNI) derailed for a $3 9/16 loss to $24 13/16 after announcing a $6.2 billion merger with Canadian National Railway (NYSE: CNI), creating a railroad larger than current industry leader Union Pacific (NYSE: UNP). However, some observers believe the proposed pairing might not pass muster with regulators. Canadian National lost $11/16 to $29 1/16 as well.

Today's Top Stories:

Verily, Verily, VeriSign Reaches New Heights
By Richard McCaffery (TMF Gibson)

Internet security software company VeriSign (Nasdaq: VRSN) jumped more than $15 in trading early today after announcing plans to spend $1.3 billion in stock to acquire a pair of e-commerce companies.

That means its market value jumped $1.5 billion at one point on word it would buy the two privately held companies, which have sales of about $1 million each, according to Bloomberg.

So much for the standard drop in share price buyers often experience in the wake of an acquisition.

VeriSign is paying $753 million in stock for Signio, which makes a software platform that helps turn a basic website into a store front where money can change hands. It's paying $575 million in stock to purchase Thawte Consulting of South Africa, which provides digital certification products and services.

VeriSign makes software that helps secure transactions on the Web. The two purchases are expected to boost VeriSign's significant lead in its space.

Generally when a company's stock drops after a pricey acquisition there's one of three factors at play: The acquirer's buying a lousy company; it's paying too much, or investors aren't confident the acquirer will add any value.

Obviously, investors don't have any such fears regarding VeriSign's recent deals. First of all, VeriSign has jumped out to a lead in the business-to-business security market, an arena investors love.

Many Internet analysts think opportunities in the business-to-business e-commerce space easily outstrip those in the retail space. Deutsche Banc Alex. Brown, for example, expects the business to business e-commerce market will hit $1.5 trillion in 2003, compared to $105 billion for the entire consumer retailing market. That's one reason VeriSign has split its stock twice this year and is up over 1,000%.

Also behind shareholder's love affair with VeriSign is the fact it's an Internet infrastructure play. The idea here is to invest in companies that power the Internet rather than trying to bet on a bevy of players out to grab the consumer's eye.

VeriSign offers services to the top 40 Internet e-commerce websites, the company said in its statement. Customers include Bank of America (NYSE: BAC), Hewlett-Packard (NYSE: HWP), and AT&T (NYSE: T).

Its two acquisitions stand out in the customer and partnership departments as well. Signio's services are integrated with software made by Commerce One (Nasdaq: CMRC), Intuit (Nasdaq: INTU), Microsoft (Nasdaq: MSFT), and others. Thawte has operations in more than 22 countries, and VeriSign said it's the number two provider of website digital certificates.

Unless a competitor stands up fast, VeriSign will be mighty tough to knock from its perch.

FOOL PLATE SPECIALAn Investment Opinion
Conexant Meets Its Maker

By Brian Graney (TMF Panic)

In its recently filed fiscal 1999 10-K financial report, diversified communications chipmaker Conexant Systems (Nasdaq: CNXT) presaged that it "intends to continue to explore investment opportunities into various companies in fiscal 2000." Today, the company put its money where its regulatory filing mouth is, picking up fabless high-performance communications processor developer Maker Communications (Nasdaq: MAKR) for about $990 million in stock, or $45.96 per Maker share based on Conexant's closing price on Friday. Predictably, Maker's shares jumped this morning while Conexant's stock headed south.

Conexant is definitely paying a premium price for Maker, which will be folded into the company's fast-growing network access division. Maker's 50 or so processor and software engineers are effectively being valued at almost $20 million a piece, or more than twice the per-techie price that chip giant Intel (Nasdaq: INTC) paid earlier this year for the engineering crew of communications chip company Level One. The new workers will hardly make a dent in Conexant's total payroll, which already includes some 1,500 engineers. But the transaction will have an effect on the bottom line, reducing Conexant's fiscal 2000 earnings "slightly" before becoming accretive thereafter.

Despite the short-term accounting effects from the deal, the addition of Maker is being sold as a long-term positive for Conexant. "This acquisition strategically extends Conexant's network access product portfolio into high value, software-intensive, protocol processing applications,'' commented Conexant chairman and CEO Dwight Decker. Already serving heavyweight customers such as Cisco Systems (Nasdaq: CSCO), Lucent (NYSE: LU), Nortel (NYSE: NT), Alcatel (NYSE: ALA), and Nokia (NYSE: NOK), Conexant's network access products business represented 19% of total revenues in fiscal 1999 and 24% in fiscal Q4 alone. The business is growing rapidly, with 29% sequential revenue growth in the most recent quarter.

Maker serves many of the main customers as Conexant, so the merger makes sense from the point of view that it extends both companies' ability to offer critical, problem-solving alternatives to the major networking box makers. Some observers have suggested that Conexant has the making of a communications chip version of PC microprocessor dominator Intel, but the comparison is a weak one. In contrast to the standardized Wintel architecture in PCs, all networking box makers have their own product architectures that they keep in house. This leaves the communications chip companies to fill in the blanks and act as outsourced problem-solvers, not architecture suppliers.

While standardization may be out of the question, the best communications chip problem-solvers can still create substantial value for shareholders down the road through sheer ubiquity. This is the tact being taken by Maker, whose CEO commented in a recent Wall Street Transcript interview that his goal is to "get our processors onto every single port card on every single piece of high-performance communications equipment in the world." That's pretty ambitious for a firm with only 80 employees. Combining with Conexant transforms the goal from dreamy to quite possibly attainable.

Competitors in the physical-layer (PHY) communications chip business will have plenty to say about that, of course. But the beefed-up Conexant will be a formidable competitor in this space, complementing its strength in other growing semiconductor areas such as wireless, personal imaging, and digital infotainment.
For investors, Conexant's breadth of product offerings sets the firm apart from the other communications chip companies out there. That fact alone makes the company one to watch as the communications chip business grows into its high expectations and high valuations in the years ahead.

More of Today's Best:

Monsanto and Pharmacia Tie the Knot
By Richard McCaffery (TMF Gibson)
-- It's a big day for Monsanto (NYSE: MTC) and Pharmacia & Upjohn (NYSE: PNU) shareholders. The pharmaceutical companies announced plans to merge last night in a deal that will create a company with a market value topping $50 billion. They also plan to break out Monsanto's controversial agriculture business into a separately operated entity and spin off about 20% of the concern in an initial public offering. Under the agreement, being called a merger of equals, Pharmacia shareholders will receive 1.19 shares of the new company, and each Monsanto shareholder will get one share. The combined company should have 1999 sales of $17 billion and a research and development budget of more than $2 billion. Management expects to save $600 million annually in costs.

FOOL ON THE HILL An Investment Opinion
'Tis the Season to Be Shopping
By Yi-Hsin Chang (TMF Puck)
-- With four more SHOPPING days 'til Christmas, I thought I'd give a quick run-down of neato offerings at various online shopping websites. Disclaimer: This is not meant to be a comprehensive shopping guide. It's actually a quick look at some e-commerce sites that are doing some very innovative things this holiday season.
Merry Christmas, everyone!

Brass Eagle Shooting Blanks?
By Dave Marino-Nachison (TMF Braden)
-- Lazer Tag and Photon were neat, no question, but there was definitely something missing -- perhaps the unmistakable slap of reality one felt when a small, blue paintball smacked into your abdomen or, even better, splattered across an adversary's safety goggles. And that's where Brass Eagle (Nasdaq: XTRM) came in. As the game caught on, shares of the paintball equipment maker made fans a lot of money between 1998 and the middle of this year and many believed the story was only going to get better with the company setting up a paintball plant to make its own pellets with eyes toward boosting profits significantly. But is the craze cooling? The shares are down some 75% from their all-time highs of May as sales disappointments the company attributed to a bevy of problems with its retail partners took their toll.

Investors Plug Into Cyber-Care
By Dave Marino-Nachison (TMF Braden)
-- The stock of Cyber-Care (Nasdaq: CYBR) rose approximately 20% to an all-time high of as much as $11 1/2 per share today on the news that a Florida developer will make the company's Electronic House Call (EHC) system available in the 450 homes it's building near Jacksonville. Today's news is just one of several recent announcements signaling the early adoption of EHC, an interesting technology developed at Georgia Tech that, if effective, would seem to have considerable appeal to healthcare organizations of varied stripe. The concept is certainly easy enough to grasp: Imagine a small television with a touchscreen interface that a patient could keep by his or her bedside. It monitors vital signs, schedules medications, and provides a 24-hour visual interface with a doctor or nurse, allowing for instant real-time communications between caregiver and patient even outside hospital grounds.

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