Fool Portfolio Report
Wednesday, January 15, 1997
by  David Gardner (MotleyFool)

ALEXANDRIA, VA, January 15, 1997-- Following yesterday's very strong earnings report from Intel, you might have expected a good day from the market. That may have been the case had Intel not made a concurrent announcement that it thought its next (current) quarter's sales might come in flat, showing no growth over the previous. Intel down $5, Nasdaq off one percent.

Meantime, the Fool Portfolio did (cough, cough, cough) a bit worse. Like down 2.30% worse, to be specific.

As detailed in last night's Fool recap, KLA Instruments (Nasdaq: KLAC) agreed to merge with Tencor (Nasdaq: TNCR) to create the rather clunkily named new corporate beast KLA-Tencor. Our guy takes over as chairman, their guy takes over as CEO, and the whole thing's pretty simple beyond that: a one-for-one stock swap. The companies are in the same basic business. That is, they both make equipment that monitors semiconductor chip manufacturing to maximize the "yield" (or percentage of good chips among the whole). As RonNTup opines on our KLAC message folder at the AOL site, there is only a tiny portion of the wafer inspection business in which the companies compete: Tencor's AIT system and KLA's 2135 system are lower-end and higher-end solutions, respectively. Outside of that "either/or" situation, the companies' sales are "and/also"; namely, you'd install their machines at different points on your same fab line.

Given the one-for-one swap, in theory the stocks' prices per share should balance out. But that won't really happen until the deal is consummated. That's because the deal isn't done till it's done, there could be regulatory scrutiny, somebody could suddenly come in with a higher bid, one of the two fiances might call off the marriage, etc. So expect them to mirror each other with their share price movements until the summer merger (expected to be June). Don't expect them to hit the same price.

The merger made for great news for Tencor shareholders... their stock was up $5 3/8 today. In our same message folder, WARMEISTER contributed this perspective: "For short-term stockholders, this acquisition may set KLAC back a few bucks. But in the long term this should be a positive." KLA lost only $1/8 on the bid today. Meanwhile, our own MF BudFox wrote, "KLAC being the company with the much higher valuation, you can't expect a merger with a smaller firm [to] add immediate value to KLA's shares. Mergers rarely work that way."

For further perspective, Randy Befumo wrote this up in today's Lunchtime News's Fool Plate Special. And by the way, KLA is supposed to report earnings tomorrow, with a 40-cent consensus estimate. What's the "whisper number"? Please read below for more on that!

So what else went wrong today? Well, America Online (NYSE: AOL) lost $1 1/2. It's been bouncing around in the high $30's for the past month, so maybe it's just a down market and a volatile stock. Some of that may be tied to yesterday's lawsuit filed in California seeking damages of $20 million for the company's purported failure to offer "unlimited access" to the Internet. With the lines jammed, AOL has apparently been giving consistent busy signals to its customers for a few weeks now. (And yes, America, we've gotten e-mails from you about this in your efforts to log into the Fool! We're not happy about it either.) Anyway, what's clear is that they want their AOL, they aren't getting enough of it, and they want $20 million.

We live in a society that sues. How often sad for most of us, excepting of course the "aggrieved" (I use quotation marks for this situation -- others are truly tragic) and those who take their money to represent them.

From a shareholder's standpoint, it's ironically been the case in times past that general member complaints about signing on have characterized great periods for the stock. Over the 18 months from mid-1994 to the end of 1995, we heard sign-on complaints frequently. Great period to hold the stock! Last year, I heard almost no gripes at all about any difficulty getting on; last year, the stock was flat. Here we are and it may be deja vu all over again (though somebody's suing this time); makes me bullishly confident.

I'd be remiss if I didn't mention that NCR rose $2 1/2... huge! A quick look at the portfolio numbers reveal that pumped us up 0.01% today.... (New readers need to know that we received our 8 shares via spinoff.)

To muse a little in closing today, I received the following sardonic e-mail from one of our readers, Mike McCreary. It's about "whisper numbers." You know these things? The idea is that completely apart from whatever analysts are outwardly stating about earnings estimates, secret numbers ("whisper numbers") exist that the "in-crowd" knows about. I'd sort of taken this notion with a grain of salt, but never really questioned it, before Mike's somewhat overcynical -- though pretty accurately targeted -- suggestion. Causes me to think of whispers in a new way:

I would like to suggest a definition contest for the newest buzzword to hit Wall Street. "Whispered Earnings." Here are two suggestions:

(1) "Yet another confusing term invented by analysts to further confuse the average investor. It was created to self-inflate their own importance in the financial world and to justify their overpriced salaries while actually doing a poorer job of projecting earnings."


(2) "Another term created by analysts to hide their poor performance and cover their bases so the average investor is fooled into thinking they actually deserve their exorbitant salaries."

A final note tonight. Pop trivia quiz time. What American company logged more patents in 1996 than any other?

Give yourself 3 Fool Points if you said Big Blue. Investor's Business Daily reported that IBM won the most patents last year: 1867, 329 more than anyone else.

--- David Gardner, January 15, 1997


Stock Change Bid -------------------- AOL -1 1/2 38.00 T --- 38.88 ATCT - 5/8 13.50 CHV + 1/2 68.50 GM - 7/8 60.13 IOM - 1/2 16.25 KLAC - 1/8 40.50 LU + 1/4 51.25 MMM - 3/4 84.50 NCR +2 1/2 35.00 COMS -2 1/4 72.00
Day Month Year History FOOL -2.30% 2.40% 2.40% 173.29% S&P 500 -0.21% 3.58% 3.58% 67.38% NASDAQ: -0.94% 3.31% 3.31% 85.19% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 16.25 545.10% 8/5/94 680 AmOnline 7.27 38.00 422.49% 8/13/96 250 3Com Corp. 46.86 72.00 53.65% 8/11/95 125 Chevron 50.28 68.50 36.22% 8/12/96 110 Minn M&M 65.68 84.50 28.66% 8/12/96 280 Gen'l Moto 51.97 60.13 15.68% 10/1/96 42 LucentTech 47.62 51.25 7.63% 1/2/97 8 NCR 33.63 35.00 4.09% 8/12/96 130 AT&T 39.58 38.88 -1.78% 8/24/95 130 KLA Instrm 44.71 40.50 -9.42% 10/22/96 600 ATC Comm. 22.94 13.50 -41.14% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 32662.50 $27599.37 8/5/94 680 AmOnline 4945.56 25840.00 $20894.44 8/13/96 250 3Com Corp. 11714.99 18000.00 $6285.01 8/12/96 280 Gen'l Moto 14552.49 16835.00 $2282.51 8/11/95 125 Chevron 6285.61 8562.50 $2276.89 8/12/96 110 Minn M&M 7224.44 9295.00 $2070.56 10/1/96 42 LucentTech 1999.88 2152.50 $152.62 1/2/97 8 NCR 269.00 280.00 $11.00 8/12/96 130 AT&T 5145.11 5053.75 -$91.36 8/24/95 130 KLA Instrm 5812.49 5265.00 -$547.49 10/22/96 600 ATC Comm. 13761.50 8100.00 -$5661.50 CASH $4600.04 TOTAL $136646.29 Transmitted: 1/15/97