Morning Stock Notes: 1/5/00

Global Crossing   announced this morning that Japanese telecom company KDD Corp. has purchased $100 million of capacity in Global's worldwide network. KDD will utilize capacity on the Trans-Pacific line built by Asia Global Crossing, a joint venture between Global Crossing, Microsoft, and Softbank. The deal marks another success for Global Crossing as KDD Corp. has been negotiating a partnership with rival Qwest Communications   for the past few months.

Intel (INTC) is expected to introduce a Web appliance--quite different from its traditional territory of microprocessor chips--today at the Consumer Electronics Show in Las Vegas. The device is expected to cost between $300 and $700, and it will be targeted at those who aren't yet hooked up to the Internet. This product announcement reinforces a hot trend that is developing for PC makers in 2000--that is, one away from the traditional PC and more towards gadgets like Internet appliances.

Yesterday, Compaq  took one step in the right direction by acquiring some of PC distributor Inacom's  assets. The deal will allow Compaq to use Inacom's order management, tracking, and e-commerce systems to be more closely connected with its customers. The company should also be better equipped to make custom PCs-- something that companies like Dell   and Gateway   have been doing for some time. President and CEO Michael Capellas estimates that this could improve gross margins by as much as 6%. Although this acquisition generally seems to be a solid move for Compaq, it's late in coming and probably won't be a panacea for all of its distribution woes.

Investors finally heard a bit of good news from Sears   on Tuesday, and the stock climbed 5% amid the market’s downturn. The good news was that the company said it expects fourth-quarter earnings to sharply exceed expectations. The problem, however, is that the expected earnings surge is not coming from top-line growth. The company stated that same-store sales rose only 0.6% in the vital month of December, compared with a 6% increase for the industry. Indeed, much of the earnings improvement is a result of less promotional activity and strong results from the credit-card division. Apparel sales continue to be disappointing.

Freddie Mac  (FRE), the nation's largest reseller of mortgage debt, announced late yesterday that it plans to sell some global bonds to investors over the Internet. This move online is another attempt by Freddie to diversify its product line and retain its leadership position in the home-financing market. Internet bond sales should be good news for the company, which continues to perform well amid increasing competition and rising interest rates.

Northwest Airlines   has filed a federal lawsuit alleging that the union representing its flight attendants encouraged a "sickout" resulting in the cancellation of more than 300 flights last month. The union, which has been negotiating a new contract with the airline for the past three and a half years, denied the charges. Between 1998's massive strike and this latest development it is clear that Northwest has significant labor troubles. In an industry where labor holds responsibility for customer satisfaction and represents the largest cost of doing business, such problems are a huge warning sign for investors.

Amazon.com's  (AMZN) stock shaved off 14% following yesterday's close, after the company indicated it is no closer to reaching profitability, despite strong top-line growth. The company preannounced partial financial results, saying that fourth-quarter sales jumped to $650 million, compared with $253 million from the same period last year. Those are strong numbers, but the holiday afterglow propping up this stock is starting to wear off, drawing more attention to the bottom line. Shareholders have reason to be spooked after this announcement and a recent article quoting CEO Jeff Bezos as saying the company will "think later" about achieving profitability.

Bristol-Myers Squibb's  (BMY) shares dropped about 6% Tuesday after Donaldson, Lufkin & Jenrette downgraded the stock, noting that the stock's P/E was on the high end of the pharmaceutical group. As sales on the company's top-selling Pravachol product have slumped in recent quarters, revenue growth has been unexceptional. Still, it's possible to make a case that Bristol's high valuation wasn't too far out of line. The company's financial health is outstanding, and with roughly 40 new pharmaceutical products under development, its pipeline is one of the stronger ones in the industry.

Grupo Televisa ADR's  (TV) secondary offering of 14 million depositary shares should come as good news to shareholders. The offering is expected to raise some $950 million that Grupo, Latin America's largest media firm, says it will use to pay down its debt (and hopefully restore free cash flows). The only foreseeable downside is that the offering increases Grupo's outstanding shares by 9%, which means that unless Grupo can offset the dilution, it is sure to miss its projected earnings per share growth rate of 27%.

This morning, BMC Software's   stock plunged more than 25% on news that the company expects EPS for the quarter ending December 31 to come in between $0.40 and $0.44, substantially below the First Call consensus of $0.53, and flat-to-down versus last year's $0.44. News that senior vice president of field operations Rick Gardner has resigned from the company raises concerns about the magnitude of the problem. CEO Max Watson attributed the shortfall to "a variety of unique circumstances and the underperformance of the North American geography," and more details will be forthcoming in a conference call scheduled for 10:00 a.m. Central time.