4/5/2002 Weekly Wrap-Up: Etch-A-Sketch A Profit

Wall Street finished the week with a decidedly uneven performance. On Thursday and Friday Apple Computer broke the $25 per share barrier in intra-day activity but failed to end the trading sessions above that increasingly important threshold. AAPL closed the day at $24.74, down $.16. The broader markets, looking for guidance from economic reports and corporate earnings, are finding only mixed news and conflicting signals.

On Friday, the Dow Jones Industrial Average (DJIA) received a boost from early good news from Dow component 3M. The DJIA ended the week at 10,271, up 36.47 in Friday trading. Also on Friday, the government released its employment report for March. Payrolls increased by 58,000 jobs, but the unemployment rate actually inched up to 5.7%. Next week the government releases its monthly retail sales report. Inasmuch as consumer spending represents roughly 2/3s of economic activity, all eyes will be on this important report.

The stock market is a component of the governmentis broad index of leading economic indicators. Traditionally, the stock market begins to rise in anticipation of economic growth. This time around, the market seems to be lagging other leading indicators in gauging an increase in economic activity. The market is looking for a clear snapshot of the economy. Currently, the economic picture for investors looks more like a 500-piece jigsaw puzzle that has just been dumped out of the box.

Akin to the Etch-A-Sketch® children’s toy that draws art in straight lines, investors are seeking information about either horizontal movements in corporate earnings or vertical upward movements, indicating that business activity is increasing as consumers regain confidence and businesses look to increase purchases and capacity, with the economy returning to positive growth. Companies such as McData, which issued an earnings warning last week, found its stock pummeled by investors who are not taking kindly to disappointing news.

Due to bad news from McData, which makes switches for the data storage market, and somber reports from other tech-related firms, investors lost their appetites for tech stocks as the week drew to a close. The technology-heavy Nasdaq Composite Index finished the day at 1,770.03, down 1.1% on the day.

In Apple news, the Cupertino-based computer maker announced the release of a product called Cinema Tools for Final Cut Pro. This pro-level video editing tool will enhance the performance of Apple’s top-of-the-line video software. Earlier this week Apple announced the purchase of Zayante, a FireWire developer headed by former Apple executives. Details of the purchase were not disclosed.

In statements widely reported on the Internet, Credit Suisse analyst Kevin McCarthy is become "less negative" on Apple. Not yet willing to make a positive change to his current hold recommendation on the stock, the analyst cites Appleis strong cash position and its increasing retail presence as reasons Apple’s revenue and profit picture may improve.

Aladdin Systems (ALHI.OB) closed the week at $.30 per share. Mac users should be familiar with Aladdin Systems as the maker of Stuffit™, the popular Macintosh compression utility. Aladdin Systems went public a while ago in a rather non-traditional way. Eschewing the cost and time delays of an SEC compliant public offering, the company purchased a publicly traded shell corporation, rolled Aladdin Systems into the corporation and then changed its name to Aladdin Systems Holding, Inc. The company has recently chosen to reduce its product range in order to focus attention on its core products such as Stuffit™ for Windows and Macintosh. Aladdinis approach to joining the list of publicly traded stocks may have saved the company time and money, but it has limited investor interest in the stock because of the lack of financial disclosures required in the public offering process.

If thereis a company that reflects the rise and fall of the dot.com era, itis Akamai. However, unlike many dot.com failures, Akamai generates operating revenue and develops attractive products and services. Akamai went public in late 1999 and the then high-flying stock reached a peak of about $350 per share. On Friday the company closed at $3.59 per share, about 1% of its historical high. The companyis market cap is about $417.5 million.

At one point the value of Akamaiis stock was so high, early investors such as Apple Computer traded at a premium due to the value of their substantial holdings in the Web services company. Akamai recently announced it was moving its offices to less expensive accommodations and continues to win new contracts for its EdgeSuite Web services product. Late last month the company announced that EdgeSuite was in use by the FBI on the law enforcement agencyis Web site.

Dell Computer (DELL), the computer company many Mac lovers love to hate, finished the week at $26.42, down $.30 on the day. Earlier in the week, Dell reported that sales for the quarter will be down less than originally expected. Due to large-scale layoffs at the height of the recession, eliminating about 10% of its workforce, Dell has been able to remain profitable during challenging economic times. Although Apple Computer has announced periodic job reductions over the past year, the number of employees at Apple is larger today than one year ago.

Macromedia (MACR), the "other" graphic design software company, finished Friday at $17.69, down $.30 on the day. Macromedia is slightly outpacing the performance of its larger rival, Adobe Systems, in year-over-year trading comparisons. Both companies have seen only marginal increases in their stock prices from 52 weeks ago, due to analyst sentiment that the professional business software market will be slow to recover from a general drop-off in sales.

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