<BREAKFAST WITH THE FOOL>

Tuesday, June 29, 1999

"Before you build a better mousetrap, it helps to know if there are any mice out there." -- Mortimer Zuckerman

Latest Market Numbers

IBM May Acquire Sequent

IBM (NYSE: IBM) is in advanced talks to acquire computer maker Sequent Computer Systems (Nasdaq: SQNT), and a deal could be announced in the next few days, though the terms haven't been finalized, The Wall Street Journal reported. Sequent's market capitalization stands at around $588 million.

A Sequent acquisition would bolster IBM's line of computer servers. Beaverton, Oregon-based Sequent makes high-end "mini-supercomputers" built by combining multiple Intel (Nasdaq: INTC) chips. These computers can crunch numbers quickly -- great for database applications. Sequent customers include Ford Motor Co. (NYSE: F) and Boeing (NYSE: BA).

For its part, Sequent has been struggling to expand beyond its high-end niche. According to its 10-K filing for last year, the company posted a loss of $52.5 million compared with net profit of $38.8 million the year before. Revenues dropped 6% to $784.2 million.

While Sequent views IBM as a competitor -- along with Hewlett-Packard (NYSE: HWP), Sun Microsystems (Nasdaq: SUNW) and Compaq Computer (NYSE: CPQ) -- the company is also in partnership with IBM on Project Monterey, an IBM initiative to develop an industry standard 64-bit versin of UNIX for Intel's IA-64 (Merced) microprocessor.

News To Go

Seagate Technology (NYSE: SEG) warned that due to weaker-than-anticipated demand plus worse-than-expected price deterioration for its disk drive products, it won't meet its earnings projections for its fiscal fourth quarter ending July 2. The company had predicted earnings of $0.45 a share; it now expects EPS of $0.32 to $0.37. Revenues will likely fall 6% from the third quarter.

Integrated communications services company Frontier Corp. (NYSE: FRO), currently the object of a tug-of-war between Qwest Communications International (Nasdaq: QWST) and Global Crossing (Nasdaq: GBLX), warned that its second quarter and full year earnings will fall short of analysts' expectations. It projects Q2 normalized earnings of $0.20 to $0.22 a share ($0.06 to $0.08 short of estimates) and full-year EPS of about $1.00. Frontier blamed the shortfall on discounted pricing in its long-distance business. The company added that its board is still evaluating the sweetened acquisition offer from Qwest.

Tobacco giant Philip Morris (NYSE: MO) told analysts it expects 1999 earnings of $3.30 a share, short of forecasts of $3.32 a share, and called the year a "transition year" for its domestic and international tobacco businesses. The company stressed that it's "poised for growth" and anticipates earnings per share growth of 11% to 13% for 2000 through 2003. It added that it plans to keep raising dividends at least in line with EPS growth.

McDonald's (NYSE: MCD) agreed to pay a $4 million fine to settle charges from the Consumer Product Safety Commission that the fast-food giant failed to report injuries suffered by children using its restaurant playground equipment. The case involved some 400 injuries to children on Big Mac Climber jungle gyms at franchised restaurants in the 1970s and 1980s. McDonald's said the gyms were removed by 1995.

Maker of nuclear-powered aircraft carriers and submarines Newport News Shipbuilding (NYSE: NNS) announced it expects second-quarter earnings to top estimates as strength in its core businesses resulted in higher margins. Including one-time pre-tax gains of $25 million, the company expects earnings to be roughly $0.40 a share higher for the quarter and said it plans to "exceed expectations throughout 1999."

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