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Strategies & Market Trends : Trader J's Inner Circle -- Ignore unavailable to you. Want to Upgrade?

To: Trader J who wrote (12367)	4/8/1999 9:33:00 AM
From: Trader J	Read Replies (2) \| Respond to of 56535

NETA - Snippet from a release: Network Associates started off the year at $66 1/4. The stock started to fall in January on concerns about an industry-wide SEC investigation into charge-offs associated with in-process research and development. Companies have been trying to maximize these "one-time" write-offs (which are summarily ignored by Wall Street analysts) so that they won't have to have an ongoing earnings hit in the form of goodwill. Acquisitive companies, such as Network Associates, were expected to be hardest hit by this investigation. After waiting three long months, with the stock continuing to drop on increasing uncertainty in the investor community about the significance of these charges, the company finally announced a resolution to these issues yesterday afternoon. Total amortization for 1999 is now expected to be about $58 million, $36 million higher than previously expected. Assuming no tax benefits, that works out to total annual amortization of about $0.39 per share. While steeper than expected, this charge shouldn't have rattled investors too much since it is non-cash and has no impact on the company's underlying fundamentals. Under normal situations, the stock might have actually increased with the elimination of uncertainty surrounding the issue. The earnings warning that accompanied this resolution, however, injected more uncertainty about a much more substantial issue. Beyond just warning that Q1 was going to fall significantly short of expectations, the company stated that it was not prepared to give guidance for the remainder of the year because of the unpredictable marketplace. If the company can't project what's going to happen, then investors certainly can't. Their default reaction is to (a) extrapolate current trends, generally assuming further deterioration in the business and (b) sell the stock. The company gave a litany of reasons for the shortfall, including a slower enterprise software business, the impacts of Y2K, an upgraded software suite, and a longer sales cycle. While these reasons may explain poor business trends, investors are likely going to stay away from the stock until more clarity about the company's future is available.