Fool Portfolio Report
Friday, November 15, 1996
by Jeff Fischer MF BudFox)
ALEXANDRIA, VA., November 15, 1996 -- The markets had a very fluid day. At one point the Dow was up nearly 70 points -- and it had been charting new waters from the very opening. While charting these new waters, though, the market apparently bumped into something frightening, and quickly ran for cover, dropping precipitously. But then, just as quickly, some markets changed direction again, and splashed higher as the closing "life-guard" blew the 4 p.m. whistle.
What caused the volatility? Perhaps the market digested the Michael Jackson wedding and forthcoming baby news, and turned oddly indecisive. Or perhaps New York locals and aficionados are upset that "Da Chicago Bulls" are again undefeated two weeks into the season, while their lousy New York team, whatever it's called, is only 6 and 2. Whatever the reason, the market hit new highs and then retreated. Hey! Maybe the options pirates were having some fun on expirations day. (Those kids can't keep their little games to themselves, eh?)
In the end, the S&P 500 ended the day up 0.24%, while the Nasdaq was hit, falling 0.67%, and the Fool along with it, dropping 1.53%. Ouch. The Fool lost the week, as well, dropping 1.17% as Iomega and ATC Communications floundered. It was a record-making week, though, for the Nasdaq and the S&P 500 (and the Dow), as all plowed into uncharted waters.
Meanwhile, Quarterdeck (QDEK) itself is searching through murky and perhaps uncharted waters. The "murk," apparently, is thick. The company was due to announce earnings after the market closed today, but now states it will announce tentatively on November 25th, subject to completion. It was heard that the company has too many "acquisition-related charges," and so it is taking longer to get the year-ending and fourth quarter numbers calculated.
Recently we received mail from a man who has sold Quarterdeck products the past two years. His writing confirmed much of what Fool HQ had surmised: that Quarterdeck does not have a product line, that they have instead of collection of older, unsupportable products which are fast becoming extinct if not already so, and that what they do sell only sometimes works. Mr. Britton also wrote, "I have sent back more product than we have shipped in the past year," and even if Quarterdeck gets a good product, full revenues on it will be off-set by the vast customer credits Quarterdeck has issued. He also wrote of sales and customer service staff problems, and concurred with the Fool that Quarterdeck needs some major over-hauling to get back on any sort of track. But in the meantime, he wrote, "This Fool is only looking for things to get worse."
Next week is the big Comdex/Fall event, showcasing cutting-edge technologies. Word is Quarterdeck will be at the event, supposedly with a new product or two. Perhaps they're pushing their earnings release back purposely, until after this event. That's just speculation on my part, though; but it would make sense to wait on earnings if they were detrimental to the company's position. Either way, earnings are due around November 25th now.
Yesterday, the most novel Fool holding, ATC Communciations (ATCT), held a conference call not so much to discuss the two week old earnings, but more to introduce the fairly new CEO and President, Mr. Chavoya. The Fool will provide full coverage of the event Monday, with the Fool's usual complete Conference Call coverage.
The call began with Mr. Chavoya providing his background, beginning fresh out of college with a large communications firm, and working his way through promotions within a few different corporations over time, until heading a division at EDS. Just prior to taking the helm at ATC Communications, Mr. Chavoya increased his EDS division's revenues from $50 million to $500 million in a short period of time. He took the position at ATC because the company has, he said, a great entrepreneurial spirit and a hard working staff, which he considered intellectual property.
Indeed, for the inbound calls ATC employees need to service, they must know, obviously, sensitive data about the corporations they represent -- companies such as American Express and AT&T. ATC's inbound call contracts represent serious business relationships, and trust between all parties. In a further boon to ATC's business, yesterday the company announced new contracts with America Online, BellSouth, and Visa Interactive.
The initial contracts are said to be on the smaller side, relatively, but most important is the business relationship possibilities represented by the contracts going forward. Many such industry contracts begin on lesser scales, sensibly, and then build into much larger relationships. These new contracts represent test markets for the companies involved, and ATC plans to pursue many "new industries" in the future as well. In the past the company has primarily been busied with communications firms, and other typical industry clients, but ATC is repositioning to focus on the next wave of outsourcing clients.
These new clients will include utilities companies -- consider all the phoning services utility companies need administered -- and financial services companies, and commercial markets, such as pharmaceutical, retail, and online services. The outsourcing industry promises to boom as more and more companies realize that tele-services are not core competencies, and realize the benefits of outsourcing such work. ATC is positioned to tackle this work and plans to pursue business from such companies more proactively (as sales are one of Mr. Chavoya's skills) rather than waiting for companies to come to them with Requests for Proposals (RFPs).
The company said they expect to grow workstation capacity 20 to 25% over the next 6 to 12 months, and the possibility of a secondary offering of perhaps 1 million shares is not out of the question. ATC doesn't need the money, but would like the visibility a secondary offering promises, and the company would like more institutional investors. Yesterday evening one of the few firms currently covering the stock reiterated their Buy rating. The stock fell $2 today to $15 3/4.
There is much more I want to write about ATC Communications, and that will be written in the weeks ahead. The conference call, again, will be available on the Fool Monday.
Moving on, the other night I attended an auditorium event presenting America Online (AOL) kingpins, including Steve Case, Robert Pittman, and Ted Leonsis. They chatted for an hour with about 150 members. It was interesting. I'll have to write about it later, though, as the Foolish deadline for this recap is about to strike, and I've been told if I don't make deadlines I'll be forced to wear green Fool leotards all next week. (Not that I don't think they're really, really cool).
The summary, though: I was impressed with the rapport the AOL execs have between each other. This may sound basic, but I think it's important: they seem to get along very well, and passed questions between each other with ease, and joked throughout the event while answering smartly and adequately all questions asked. They seemed quite happy, at least in the Virtual Places auditorium, and I think that's important. In the past months they often seemed befuddled. Sure, they still have a lot of work ahead of them, and always will, but confidence is a big key to that work.
Anyway, when Steve Case was asked why the flat-fee wasn't instituted earlier, he said, "Because we're slow?" But went on to explain that they needed to make sure they could handle the increased usage before they could go to a flat-fee. They have since been ramping up everything (modems, servers, etc.) in order to handle the increased demand. Mr. Case said they've already seen demand increase from current users, and have seen substantial new demand come online, and old members beginning to return to AOL.
All in all, it was an upbeat event, and one in which Mr. Case talked briefly about the beginnings of AOL, back in 1985 or so, when he saw all the potential the online world represented, but had to beg other companies to show any interest in it. It's been a long wait for him, and he admits now the vision is coming into view, but still AOL is only just beginning to be all he dreams an online community can be. You have to hand it to him to have had the vision so long ago.
As for the future, he said there is so much in the works that it's too much to talk about. But he said, and I quote, emphasis and all, that the coming AOL Phone will "BLOW YOUR MIND."
Finally, AOL is holding its Member's Choice Awards, and your good old Fool has been nominated for four of the ten online awards. Stop by keyword Member's Choice and cast your votes before you sign off today. It takes two minutes, and you may find some other "favorites" to visit as well.
Have a Foolishly pleasant weekend!
Stock Change Bid ------------------- AOL + 1/8 27.25 T - 1/4 37.38 ATCT -2 15.75 CHV + 3/8 65.63 GM + 3/8 55.50 IOM - 1/2 22.50 KLAC + 3/8 31.00 LU - 5/8 48.50 MMM - 1/2 81.25 QDEK --- 4.69 COMS + 3/8 72.25
Day Month Year History FOOL -1.53% 2.98% 49.42% 179.01% S&P 500 +0.24% 4.59% 19.76% 60.91% NASDAQ -0.67% 3.30% 19.93% 75.21% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 22.50 793.22% 8/5/94 680 AmOnline 7.27 27.25 274.68% 8/13/96 250 3Com Corp. 46.86 72.25 54.18% 9/27/96 -890 Quarterdec 7.08 4.69 33.83% 8/11/95 125 Chevron 50.28 65.63 30.51% 8/12/96 110 Minn M&M 65.68 81.25 23.71% 8/12/96 280 Gen'l Moto 51.97 55.50 6.79% 10/1/96 42 LucentTech 47.62 48.50 1.86% 8/12/96 130 AT&T 39.58 37.38 -5.57% 8/24/95 130 KLA Instrm 44.71 31.00 -30.67% 10/22/96 600 ATC Comm. 22.94 15.75 -31.33% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 45225.00 $40161.87 8/5/94 680 AmOnline 4945.56 18530.00 $13584.44 8/13/96 250 3Com Corp. 11714.99 18062.50 $6347.51 9/27/96 -890 Quarterdec -6304.75 -4171.88 $2132.88 8/11/95 125 Chevron 6285.61 8203.13 $1917.52 8/12/96 110 Minn M&M 7224.44 8937.50 $1713.06 8/12/96 280 Gen'l Moto 14552.49 15540.00 $987.51 10/1/96 42 LucentTech 1999.88 2037.00 $37.12 8/12/96 130 AT&T 5145.11 4858.75 -$286.36 8/24/95 130 KLA Instrm 5812.49 4030.00 -$1782.49 10/22/96 600 ATC Comm. 13761.50 9450.00 -$4311.50 CASH $8801.62 TOTAL $139503.62 Transmitted: 11/15/96