MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING THUR., JUNE 18 1998 (2)
MARKET OVERVIEW
Thursday Markets In U.S., Con't
Technology stocks
Continuing concern over fallout from the Asian economic crisis weighed on much of the tech sector, dragging the Morgan Stanley High Tech Index (MSH) down 0.29 to 553.69.
The pressures showed up notably on the Dow as an analyst downgrade hit IBM Corp. (IBM). The computer giant's shares fell 2 3/16 to 108 13/16 after Goldman, Sachs & Co. analysts cut their "recommend" from "priority." The analysts said that the sinking yen raises additional uncertainties for IBM and the rest of the computer industry.
Fellow Dow component Hewlett-Packard (HWP) continued its decline, off 1 13/16 to 56 11/16, a day after Merrill Lynch analysts cut their rating on the stock. Gruntal analysts on Thursday raised their rating on H-P to "strong buy" from "buy," but lowered their estimates on the company's 1998 and 1999 earnings.
Merger activity in the Internet sector helped keep tech issues buoyant. The AMEX Internet Index (IIX) rose 3.30 to 342.27.
Most notable was a deal announced by search-engine specialist Infoseek (SEEK) that it would sell a 43% stake to Walt Disney Co. (DIS). Infoseek shares rose 5/8 to 35 1/8, while Disney fell 2 5/16 to112, after Disney agreed to pay $70 million cash plus its ownership position in Starwave in return for a 43% stake in Infoseek. Infoseek also agreed to purchase $165 million of promotional support -- to be provided by Disney -- for the combined Infoseek-Starwave Web portal service.
America Online (AOL) dropped 1/4 to 93 5/8 after The Wall Street Journal reported that the Internet-service provider's exclusive multiyear marketing alliance with long-distance company Tel-Save Holdings (TALK) could possibly complicate the broad-based marketing and technology alliance that AT&T Corp. (T) is seeking with AOL. According to "executives familiar with the matter," AT&T Chairman C. Michael Armstrong and Chief Financial Officer Daniel Somers held talks with Tel-Save in order to become AOL's telecommunications partner. Tel-Save shares climbed 1/2 to 17 3/4.
Word of a possible merger bolstered the networking sector. Ascend Communications Inc. (ASND) jumped 15/16 to 50 5/16 on the news that Ericsson AB (ERICY), one of the world's largest telephone-equipment makers, is in talks to acquire the U.S. computer-networking company and other networking companies. Ericsson fell 1 9/16 to 25 7/8.
Ericsson reportedly has also talked to 3Com Corp. (COMS) about an acquisition. 3Com rose 2 5/8 to 27 1/4. The AMEX Networking Index (NWX) rose 1.46 to 358.52.
Oracle Corp. (ORCL) climbed 5/16 to 24 5/8 after reporting diluted fourth quarter earnings of 41 cents per share, which exceeded analysts' estimates of 38 cents per share and surpassed profits of 36 cents per share for the same period a year ago. The database-software developer credited the gains to growth in its computer services unit that helps companies install and use Oracle products.
Evolving Systems Inc. (EVOL) fell 5 3/4 to 9 1/2 as the applications software company warned that it expects a second-quarter loss of 6 cents to 11 cents a diluted share, citing slower sales and contracts. The company was expected to earn 5 cents a share.
Stratus Computer Inc. (SRA) fell 7 3/4 to 24 3/4 after warning that it will lose about 42 cents a share in the second quarter, including charges, on an anticipated 20% decrease in revenue from a year ago. The seller of computers and software that helps telephone companies manage networks also said it is cutting 100 jobs through attrition.
Avid Technology Inc. (AVID) fell 4 5/16 to 28 7/16 after the maker of video editing systems was cut to "neutral" from "buy" by analyst Hany Nada at Piper Jaffray Inc. Nada said the company's agreement to buy Microsoft Corp.'s (MSFT) SoftImage unit may reduce this year's earnings by 15 cents to 25 cents a share and next year's by 21 cents to 67 cents.
A downgrade also hit shares of 3DFx Interactive Inc.(TDFX), which fell 2 to 16. The maker of media processors and software for the electronic entertainment market was downgraded to "hold" from "buy" by analysts at NationsBank Montgomery Securities LLC.
After the bell
Texas Instruments Inc. (TXN) said Thursday that it agreed to sell its troubled computer memory chip business to Micron Technology (MU) and announced it will cut 3,500 jobs in a restructuring of its global operations. Texas Instruments said Micron was buying its remaining memory chip business for a combination of common stock and assumption of debt totaling about $800 million. The deal caps a string of divestitures by Texas Instruments over the last two years.
At the same time, Micron (MU) released its fiscal third-quarter results, saying it lost $106 million, or 50 cents a diluted share, on sales of $610 million. Analyst estimates had forecast a loss of 43 cents a share.
Exchange Commission that it expected to post a loss in the second quarter due to a one-time $45 million charge related to its purchase of Web software maker Viaweb Inc.
Iomega Corp. (IOM) said it plans to cut 600 to 700 jobs, or as much as 14% of its workforce, as the company struggles to reduce costs and forecast a wider than expected loss for the second quarter. The maker of computer-data storage devices said it expects a loss in the quarter of $25 million to $35 million, or 10 cents to 13 cents a share. The average estimate was a 2-cent loss.
Sequent Computer Systems Inc. (SQNT) forecast a second-quarter loss of 25 cents to 35 cents a share and said it will cut as many as 250 jobs, or about 9 percent of its workforce. The company, whose servers are used by companies to manage transactions and databases, said revenue declined to about $185 million to $195 million because Boeing Co. (BA), the world's largest aircraft maker, ordered fewer of its computer servers.
Schlumberger Ltd. (SLB), the largest oilfield-services company, reportedly is in talks to acquire Camco International Inc. (CAM), the nation's eighth-largest oilfield services company, in the latest potential combination in the industry.
NS Group Inc. (NSS) warned that it foresees lower-than-expected third quarter earnings of 5 cents to 9 cents a share. The producer of oil drilling pipe was expected to earn 18 cents a share.
Brew of worries keeps markets bubbling
Double, double toil and trouble. The scene of Friday's markets promises to be a veritable cauldron of volatility: churning overseas markets, a confusing layer of smoke from tobacco issues -- and, of course, a "triple witching" day.
Stocks were adrift for most of Thursday as traders showed little enthusiasm to build on the prior session's sharp gains as they waited for Japan to move decisively in curing its ailing economy. And it's unlikely that the tide will shift soon in either direction.
"Yesterday's sparkling rally was irrational exuberance and now we are consolidating," said Courtney Smith, chief investment officer at Orbitex Management. "Investors were looking for an excuse to rally, they found the excuse, but now they have to get back to reality, which is that intervention isn't really going to make any difference."
Wall Street reckons that the yen's recovery can only be sustainable if Japan takes bold steps to get its economy back on track -- namely, letting more banks fail, helping lenders write off bad loans, and strengthening banking standards. Even after repeated pledges to do so, Japan has not allowed many insolvent banks to fail.
Asia's financial problems were brought home to U.S. investors again on Thursday when the nation's trade deficit with the rest of the world swelled to a record $14.5 billion in April. Asia's economic crisis was dragging down U.S. exports in a trend that economists said will only get worse. It was the second straight month of record deficits.
The yen eased from its highs on Thursday, enabling the dollar to recoup some of the ground lost during the Japanese currency's rebound on Wednesday.
"The activity around yesterday's yen-dollar situation was a short-term event, and we don't think the intervention per se is going to resolve the problem long-term," said Phil Orlando, chief investment officer at Value Line's Asset Management.
"We will need to see some definitive concrete steps coming out of Japan before we feel the situation is resolved," he said.
There is an upside to all this, though. While the Asia economic crisis is taking its toll on certain sectors, especially technology, for retailers the turmoil is keeping prices low and may prolong this year's strong sales trend.
"I think to the extent that the Asian crisis really is a strong force in keeping prices down, this is very good for the retail business," said George Rosenbaum, chief executive officer of Leo J. Shapiro & Associates, a Chicago based market research firm.
Further confusing the market picture was Thursday's demise of tobacco legislation in the U.S. Senate, which initially elated investors, who rushed to pump up the price of tobacco stocks. However, many may reassess their positions as it becomes clearer that the Senate action also leaves the companies exposed to continuing litigation.
Some analysts felt there was little downside to the action. "This industry faced two major threats -- litigation and legislation -- both of which were very, very material," Dean Witter Reynolds analyst David Adelman said. "After the Senate vote yesterday, one of those risks has been largely removed."
However, the tobacco industry now faces massive court battles without the legal protection it won in last year's settlement with the states. Ironically, the 1997 agreement with state attorneys general may have generated even more legal troubles for the industry as plaintiffs rushed to courthouses across the country, fearing the deal would eventually become law and bar certain future civil claims.
"For the companies, it has been a disaster," said Richard Daynard, who chairs the anti-smoking Tobacco Products Liability Project at Northeastern University in Boston. "Since last year, litigation has mushroomed. I think there are probably 1,000 suits out there."
"The lawsuits pose a devastating and looming threat of financial peril," said Connecticut Attorney General Richard Blumenthal, who helped negotiate last June's settlement.
Finally, as if Friday's markets weren't already set up for more volatility, there's the "triple witching" expiration of options on common stocks and stock indexes and futures on stock indexes. Such expirations usually create roller-coaster markets as investors buy and sell shares to offset the options positions.
International
Stocks surged across Asia yesterday as investors reacted with glee to joint intervention by Tokyo and Washington to boost the yen.
Bourses from Sydney to Seoul registered sharp gains after the U.S. Federal Reserve and the Bank of Japan spent up to US$6 billion overnight to shore up the yen.
Asian stock markets roared their approval as soon as trade began with a string of big opening rises, building on Wednesday's gains.
The yen's rise gave sentiment a boost, fuelling hopes that Japan would now begin to fix its sputtering economy and easing fears that China would be forced to devalue its yuan to stay competitive.
Following the lead of the Dow Jones Industrial Average, which gained 164.17 points Wednesday, the Tokyo Stock Exchange's Nikkei Stock Average jumped 646.16 points, or 4.39 percent, closing at 15,361.54.
Shares also soared on other markets in the region.
The key Stock Exchange of Thailand index jumped more than 10 percent in early trading before profit taking set it. It closed 8.1 percent higher at 295.15.
In South Korea, the key index climbed 7.1 percent, closing at 325.49 points.
Hong Kong's the blue-chip Hang Seng Index closed 6.4 percent higher at 8,515.97 points as interbank interest rates eased. It had gained 6.3 percent Wednesday.
The Philippine Stock Exchange Index rose 6.6 percent to 1,828.59, its heftiest gain in four months.
Share prices in Indonesia and Malaysia also rose, with Jakarta's JSX Composite Index closing up 5 percent at 440.093 points, and Kuala Lumpur's Composite Index rising 4.6 percent to 471.82 points.
After hitting a 9 1/2-year low earlier this week, Singapore's Straits Times Industrials Index surged 5.6 percent at one point before profit-taking trimmed some earlier gains. It closed up 2.3 percent at 1,133.41.
Taiwan's key Weighted Price Index jumped 4 percent to 7,768.31 points.
New Zealand's key NZSE-40 capital index closed up 1.6 percent at 2,031.96 points, and Australia's All Ordinaries Share Index jumped 2.3 percent, closing at 2,031.96 points.
In Europe, however, markets told a different story. European stocks fell, with exporters posting the largest declines, amid doubt that international support for Asia's currencies will help mend the region's economies soon.
Shares initially rose modestly on the London Stock Exchange, Europe's biggest equity market, but the blue chip Financial Times-Stock Exchange 100-share index reversed course and closed down 20.6 points, or 0.4 percent, at 5,812.1.
The pattern was similar across most of continental Europe. While Frankfurt's DAX index nudged higher, prices fell in after-hours computerized trading in Germany and markets closed lower in Paris, Milan, Madrid, Zurich, Copenhagen, Stockholm, Oslo and Vienna.
In London, shares ended lower, depressed by renewed fears of an interest rate hike soon after retail sales figures came in stronger than expected, killing an earlier advance. The FT-SE 100 index closed at 5812.1, down 20.6 points, or 0.4%. Among featured British shares, B.A.T Industries rose 2.6%, after the U.S. Senate killed a tobacco bill that had threatened the industry with a settlement of US$516 billion.
In Frankfurt, German shares fell after a Bundesbank report indicated the central bank might introduce a slight rise in interest rates. The Dax 30 index closed at 5718.06, up 8.7 points, or 0.2%. In later screen based trade, the Xetra Dax ended at 5689.89, down 52.94 points, or 0.9%. German auto maker Volkswagen, shrouded in uncertainty about talk of a possible buyout of Italian car manufacturer Bugatti, fell 2.3%. "People have had enough," said one trader. "One day it's Lamborghini, the next it's somebody else. Investors don't know where they stand." Volkswagen declined to comment.
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