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Strategies & Market Trends : Stocks Crossing The 13 Week Moving Average <$10.01 -- Ignore unavailable to you. Want to Upgrade?

To: James Strauss who wrote (8312)	3/30/2001 2:44:16 AM
From: Chisy	Read Replies (1) \| Respond to of 13094

James: April usually starts a better time for beaten down stocks after institutions are finished with window dressing. Many in this market climate are calling it "Window Undressing". LOL Here is an interesting article on the whys for all the bad news that corporate heads are throwing out to the public. ................... When a football team is losing by a laughable margin, it will frequently concede the game, replacing its starters with the guys on the bench. The theory is that giving the subs experience -- and building for the future -- is worth losing by a dozen more points. Something similar is happening in the tech world. Faced with a financial complexion that would give acne a proud name, companies are seizing the opportunity to write off investments, end product lines or restructure manufacturing. The theory is both simple and rational. As long as the market is going to hammer us, we might as well throw in the kitchen sink. At least our numbers will look better in comparison a year from now. ``There's no reason to take a hit when a market is roaring along,'' says Mark Langner, an analyst with Epoch Partners in San Francisco. ``When things turn bad, however, tossing in the kitchen sink along with everything else is the way some companies choose to go.'' Consider three recent examples: In mid-February, Hewlett-Packard (HWP) announced that it would take a charge of $365 million, or 15 cents a share, for anticipated losses in its investment portfolio. That came amid a quarterly announcement of a 59 percent drop in net income for the first quarter. Then, last week, struggling 3Com (COMS), as part of a restructuring move aimed at cutting expenses, said it would jettison its Internet appliance business, code-named Audrey, and its Internet radio, known as Kerbango. Though the company didn't disclose its losses on the products, they had to be considerable. ``It was a little like the Newton,'' said company spokesman Bruce Johnson, who paraphrased the comments of CEO Bruce Claflin. ``Everyone knows it's going to happen. But we have a responsibility right now, and our responsibility is to get profitable. In a layoff announcement at almost the same time, Solectron (SLR), the Milpitas-based contract manufacturer, said it was taking a charge of $300 million to $400 million to realign manufacturing plants to meet changes in customer demands. Of course, this kind of behavior goes way back in the annals of American business. Banks are famous for writing off bad loans during down periods. And companies frequently use the arrival of a new executive as an excuse for writing off past mistakes. But there's something new here, in part because the investment portfolio of many tech companies looks like, well, the portfolio of many of the rest of us. And while accounting rules attempt to define how these investments should be valued, there's wiggle room, particularly in how companies value their private investments. I called up the CFO of a still-kicking software company to ask him about this. The CFO wanted to remain anonymous. But he noted that his company will write down its investment in private companies under three conditions: a) if his company has to invest because the private firm is running out of cash or b) if a third party invests at a valuation below their carrying value (otherwise known as a ``down round'') or c) if the private company ``fails to perform'' certain benchmarks. The CFO's point was that the first and third criteria are essentially subjective. ``You can go into private equity investments and maybe revalue it, taking the hit to earnings,'' he said. ``In a bad quarter, you might say, `Hey, I'd rather take it now.' On the other hand, if you're just on the edge of making your numbers, you might resist the idea.'' What does all this mean? Well, I don't mean to sound like a Pollyanna here. There's still plenty of bad news in the market. And my own soundings among venture capitalists suggest that some companies are trying to prolong the suffering they face in private investments. But the willingness of companies to take the hit for bad investments and bad products during down quarters means that their forward comparables -- which, after all, drive a piece of market action -- will look much better. ``You know the quarter is going to stink because you've got a product line underperforming,'' says Sandy Harrison, an analyst with Pacific Growth Equities in San Francisco. ``You can take time to write it off to levels that are low. Then, at some future point, you'll be selling the product with 100 percent gross margins.'' For those who don't know about gross margins, they're the difference between the cost of making a good and what the company sells it for. Take my word. One hundred percent is as good as it gets. While companies are unlikely to reach that, the game of lowering expectations makes it more possible. (Author unknown) Posted on: ragingbull.lycos.com