<BREAKFAST WITH THE FOOL>

Monday, February 1, 1999

"Beware of enterprises that require new clothes." -- Henry David Thoreau

Latest Market Numbers

Compaq Out-Delling Dell?

Compaq Computer (NYSE: CPQ) says its direct sales are stealing business from rivals Dell Computer (Nasdaq: DELL) and Gateway (NYSE: GTW). Compaq, which started selling its new Prosignia line of computers directly to customers via phone and the Internet two months ago, said direct sales have exceeded $1 million a day, The Wall Street Journal reported. According to customer surveys cited by Compaq executive Kenny Kurtzman, who led the launch of Prosignia, about 70% of the company's direct sales would've gone to its major competitors, with about half going to Dell and around 14% to Gateway.

While Kurtzman declined to disclose actual sales figures, he said the average price for Prosignia computers is $400 more than Compaq PCs sold through computer retailers and dealers. (Direct buyers tend to buy more souped up computers.) On Friday, the company named Kurtzman to head a new Compaq.com Business Division, responsible for selling products and services on the Internet. This followed last Tuesday's announcement that Compaq has established AltaVista as a separate company and intends to sell part of the company in an initial public offering.

If Prosignia has in fact taken sales from rival Dell, it hasn't shown up in the most recent market data. According to market research firm International Data Corp. (IDC), Dell's shipments in the fourth quarter surged 56%, the strongest growth among the top five PC makers, giving Dell an 8.4% of the world market and 12.8% of the U.S. market (up from 9.9% a year earlier). In contrast, Compaq's U.S. market share slipped to 18.1% from 19% a year ago. IDC reported that worldwide PC shipments jumped 15% during the quarter -- it had expected a 12% rise. Dell shares shot up $5 13/16, or 6%, on the news Friday.

News to Go

AT&T (NYSE: T) this morning announced that it has formed a "significant strategic relationship" with media and entertainment giant Time Warner (NYSE: TWX) that will include a joint venture offering AT&T-branded cable telephony service over Time Warner's existing cable TV systems to residential and small business customers in 33 states. The companies, which expect to launch a pilot program in one or two cities by the end of the year, also agreed to jointly market and develop other communications services. AT&T will own 77.5% of the joint venture, while Time Warner will own the remaining 22.5%.

Separately, AT&T reportedly won a bid to sell more than $100 million of pre-paid calling cards through 2,400 Wal-Mart (NYSE: WMT) and 450 Sam's Club stores, according to The Wall Street Journal. On the losing end of the deal is rival MCI WorldCom (Nasdaq: WCOM), which previously held the contract with Wal-Mart.

Computer chip maker Advanced Micro Devices (NYSE: AMD) is reportedly in talks with PC direct seller Gateway (NYSE: GTW) regarding a possible deal in which Gateway would use AMD microprocessors for the first time ever, ending its monogamous relationship with Pentium chip maker Intel Corp. (Nasdaq: INTC). According to PC Week Online, Gateway will introduce PCs that run on AMD's K6-3 chip, the more powerful successor to the K6-2, which has dominated the under-$1,000 PC market.

It looks like it's going to cost more to fly the friendly skies. Over the weekend major U.S. airlines raised airfares across the board after long-time holdout Northwest Airlines (Nasdaq: NWAC) late Thursday matched Delta Air Lines' (NYSE: DAL) 4% increase on advanced-purchase leisure fares and 2% increase on last-minute fares most often paid by business travelers. AMR Corp.'s (NYSE: AMR) American Airlines, Continental Airlines (NYSE: CAI.A), America West (NYSE: AWA), US Airways (NYSE: U) and Trans World Airlines (NYSE: TWA) followed suit Friday. UAL Corp.'s (NYSE: UAL) United Airlines joined the party over the weekend. News of the fare increases drove airline stocks higher Friday.

Athletic footwear giant Nike's (NYSE: NKE) Chairman and CEO Phil Knight said he expects relatively flat profits for fiscal 1999 (ending in May) due to the economic problems in Asia and Latin America, Bloomberg reported. That would beat current earnings expectations of $1.54 a share, compared with $1.62 for fiscal 1998. Knight anticipates that earnings will improve in fiscal 2000 on cost cuts and the introduction of new products. Analysts expect Nike to earn $1.92 in fiscal 2000.

Latest Earnings Announcements:

Aetna (NYSE: AET) -- Q4 EPS: $0.98 (includes Y2K costs) vs. $0.87 last year; estimate: $0.96
Coulter Pharmaceutical (Nasdaq: CLTR) -- Q4 EPS: profit of $1.47 vs. loss of $0.82 last year; estimate: profit of $1.35
Creative Technology (Nasdaq: CREAF) -- fiscal Q2 EPS: $0.64 vs. $0.79 last year; estimate: $0.64
Sirrom Capital (NYSE: SIR) -- Q4 EPS: $0.19 (pre-tax operating) vs. $0.30 last year; estimate: $0.27

More Foolishness

Get a run-down of what happened in Fooldom last week in our latest Notes from a Fool... In the interest of promoting shareowners' right to know, the Fool rated the investor relations efforts of 20 big-name companies. Learn your shareowner rights and see how these companies fared... Don't miss our StockTalk interview with the CEO of EMC Corp.

-- Friday's Evening News
-- Fool Community
-- Post of the Day
-- Latest Fribble

Also, check out the Lunchtime News at 12:30 p.m. for updates on the top stories of the day, and remember to start each business day with Breakfast With the Fool at 9 a.m.

Let us know what you think of this feature. Send all comments and suggestions (including Foolish quotes) to the Breakfast Fools.

Yi-Hsin Chang (TMF Puck), Writer
Jennifer Silber (TMF Amused), Editor