Excerpts - contd
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Why an Upstart
Named Microsoft
Frustrates Oracle
The next big battle in the software industry pits entrenched incumbent Oracle against a price-slashing newcomer supported by an army of smaller allies. And this time, Microsoft may get to play the good guy.
For Bill Buckner,
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From Barrons
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Are u rich yet -- cover story -- very good article - please read
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July 27, 1998
Option Oxymoron
Internet indexes may just be too rational
By Michael Santoli
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The CBOE and Amex plan to list options on Telebras HOLDRs after the securities begin trading, which is expected to be Tuesday. The HOLDRs, a Merrill Lynch product, are baskets of the 12 stocks to be created by the breakup of the Brazilian telecom giant.
IMHO: We shd seriously look into this
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July 27, 1998
While Everybody Frets About Asian Crisis, Latin America's Economies Head South
By John Liscio
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Keep an eye on Latin America. So counsels Morgan Stanley Dean Witter's Joe Quinlan, who warns of some "significant and unsettling developments from our neighbors to the south." Among the main Latin American countries, growth has slowed, trade deficits have widened and corporate profitability has weakened. The steady decline in world commodity prices -- courtesy of Asia -- has cast an even deeper pall over the region, says Quinlan.
That's because weak commodity prices translate into less government revenues and smaller budget cuts as well as rising debt-service costs.
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To stay up to speed with this crucial development, investors should familiarize themselves with two key indebted ratios. One is the value of total long-term debt to exports, which is how countries earn the foreign exchange to service their debt. The second variable -- the ratio of total debt to GDP -- shows how much debt is owed compared to the total output of the economy.
Judged by the value of its long-term debt to exports, Indonesia, at 236%, is the true basket case among the Asian-crisis economies, followed by India (152%), Thailand (131%) and the Philippines (116%). Among Latin American nations, the figures for Argentina (323%), Peru (318%) and Brazil (293%) each eclipse that of Indonesia, while Colombia (206%), Chile (166%), Mexico (154%) and Venezuela (147%) are clearly in the danger zone.
As for as the ratio of total debt to GDP, only Vietnam -- which failed the debt-to-exports test (322%) as well -- falls into the category of the severely indebted, with long-term debt at 123% of GDP.
China is among the least indebted nations in the two regions, with a debt-to-export ratio of 76% and a debt-to-GDP ratio of just 17%. No doubt that is a big reason why the trade picture in China is beginning to improve. The looming question, though, is: Will it improve quickly enough for China to resist devaluing the yuan, sending the Pacific Rim into a fresh episode of turmoil?
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Plugged In
'The Stock Is Overvalued' - Eric J. Savitz
That's what Microsoft CFO Greg Maffei told analysts last week. Of course, he says that all the time. The trouble with GK.
interactive.wsj.com
Microsoft Cries 'Wolf!' But Analysts Won't Listen
By Eric J. Savitz
Over the long haul, all of the analysts we talked to at the meeting seemed to agree Microsoft will maintain and even expand its dominant position in the software business.
Still, Maffei's cautions bear repeating. For starters, he expects revenue growth to continue to slow for the third year running. In fiscal 1998, growth slowed to 28%, down from 31% in fiscal '97 and 46% in '96. For one thing, Maffei notes, Microsoft's revenues have historically had a close correlation with PC shipments. Current industry estimates for double- digit PC unit growth in 1999, Maffei says, reflect anticipation of a big rebound in demand in Japan. But conditions there, he warns, seem to be getting worse, not better. Overall, he says, weakness in Asia will clip Microsoft's growth rate this year by at least three percentage points. And he says the company will continue to feel pain, too, from the continued rise of the dollar.
Meanwhile, Maffei adds, an increasing percentage of PC shipments to U.S. corporations represent replacements for older models. That's not so good, he says, because buyers of replacement machines typically provide less software revenue to Microsoft than new purchasers, because they already own some of the software they need. The increasing sales of PCs under $1,000 also is a mixed blessing, because buyers of cheap hardware tend to spend less on software than those shelling out for more expensive models.
And that's not all. Maffei contends it isn't clear the fast start for Windows 98 can be sustained, given that the upgrade isn't of the same magnitude as the switch to Windows 95. Maffei also warns that sales of Microsoft Office can't possibly stay on their recent pace. For one thing, he notes the company already has an 89% market share of that business, leaving little room for further expansion.
Had enough yet? Too bad, there's more. In the Windows NT server business, Maffei sees demand muted both by customers awaiting the arrival next year of NT version 5.0, and by the diversion of spending away from new products to solve the Year 2000 problem. Maffei warns that the kind of market-share gains made by Windows NT and Microsoft Exchange recorded in fiscal 1998 won't be repeated in fiscal 1999.
The analysts seemed more interested in the presentations that dealt with new products. Coming over the next year or so are four key pieces of software: SQL Server 7.0, the latest version of Microsoft's database software; Office 2000, a revised edition of the company's suite of desktop business applications; Windows NT 5.0, a much-awaited rewrite of its key operating system; and Exchange "Platinum," a revamped version of its electronic mail program. They also plan an extensive overhaul of its Web sites, combining most of their Internet offerings under the MSN name, and adding new functions like a proprietary search engine and instant messaging. While Maffei made the case that Microsoft's stock seems too high, his colleagues explained how the new wares would improve the company's ability to compete with its most hated rivals: NT taking share from Sun Microsystems and the Unix world, SQL Server making strides against Oracle, the revised Web sites taking on Yahoo, and Exchange making further inroads against Lotus Notes.
"The meeting was very positive," enthuses Mary Meeker, software and Internet analyst with Morgan Stanley Dean Witter. "They were consistently more upbeat than at previous meetings." Huh? And what about Maffei's gloomy musings? Had she been chatting in the hall for that one? "The rate of revenue growth will decline," she concedes. "But the medium- and long-term outlooks are very positive. If there's a consistent theme of this meeting, that's it."
Rick Sherlund, software analyst at Goldman Sachs, contends the meeting offered few surprises, other than an acknowledgment that Microsoft's losses in the Internet sector are widening, and some details about Office 2000. And what about Maffei's rant? "We've heard it all before," Sherlund shrugs. "I wouldn't ignore it, but there are mitigating factors." Windows 98, he says, should do better than Microsoft now suggests. Office, he says, will have a better year than the Microsoft brass want to admit. SQL 7.0, he adds, should have "a good upgrade cycle," taking dead aim at Oracle.
Mark Specker, who tracks Microsoft and PC stocks for SoundView Financial, says Microsoft's sheer size, and its dominance of the software business, makes people more willing to pay up for the stock. "Will they be successful in talking down the stock price? I doubt it." Janet Rankissoon, who runs Quadra Capital, a New York investment firm, observes that the question people are trying to answer is, "what is fair value for the best software franchise?" At the moment, the Street seems to think the answer is something north of $300 billion.
IMHO: What is this GK ?
GK Intelligent Systems stock has had one mammoth, mind-blowing run since early this year, when it was trading on the NASD Bulletin Board system for 25 cents a share.
The stock's rise started in March as investors got wind of GK's agreement to have former Compaq CEO Rod Canion serve as chairman, and it got further juice from a May 21 jump from the Bulletin Board to the American Stock Exchange.
By the time GK started trading on the Amex, the stock had reached $8, and there it sat for a few weeks. More recently, the stock has, for no apparent reason, resumed its vertical ascent, and on volume heavy enough to make it one of the Curb's most actively traded issues.
By Friday's close, GK had hit 14 5/8, a 5,750% gain on the year. With 28.2 million shares outstanding, it sports a $412 million market cap. Exactly why isn't easy to figure.
Let's look at what GK investors get for their money. Earnings? Nope. In the nine months ended February 28, the company lost $3.2 million. Revenues? Zilch. From the company's inception, in October 1993, to date, GK has had no revenues. Assets? At February 28, total assets came to $2.6 million, all but $224,370 of them consisting of "computer software costs."
In fact, GK has been scrambling for cash. In April, it agreed to sell 4.6 million shares for $5.4 million; in February, it sold 2.1 million for $1.25 million. Those deals would have been seriously dilutive to earnings, if the company had any earnings. Without the two transactions, GK might have fallen into insolvency.
In fact, at February 28, GK had just $22,581 in current assets, compared with $791,803 in current liabilities. Indeed, GK conceded in its 10-Q for the February quarter, filed in April, that there's "substantial doubt about its ability to meet future expected expenditures necessary to fully develop its software products and applications and to continue as a going concern."
Clearly, some investors seem not to care about that -- although others have apparently gotten the message. Since GK listed on the Amex in May, the SEC has received 15 Form 144 filings to sell stock, most of it held by investors in the company's previous private placements. Since last March, there have been 43 such filings, covering more than 932,000 shares.
Details on GK's product plans are sketchy at best -- and no one we talked with in the computer-based training business seems to have heard of the company. GK's Web site says it will release titles on CD-ROM first, and then produce versions for corporate Intranets. Just how GK's titles will differ from other computer-based training programs, like those from market leader CBT Systems, isn't clear. Some GK press releases refer to a yet-to-be-sighted CD-ROM called "Around the Web in Eighty Minutes." They haven't mentioned many others.
The real question, of course, is whether GK, which boasts some ex-Compaq execs on staff but little else -- no earnings, no revenues, few assets -- deserves a market cap of more than $400 million.
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