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U.S. stocks witnessed the heaviest selling in five weeks as worries over the upcoming second-quarter earnings season kept buyers on the sidelines. The S&P 500 fell 14 points (-1.4%) to 981. The DJIA declined 127 points (-1.4%) to 9072. Both indexes have dropped three of the past four days. The Nasdaq Composite shed 33 points (-2.1%) to 1610. Some 1.4 billion shares changed hands on the Big Board, 5 percent less than its daily average over the past three months. The S&P 500 has risen 16 percent this quarter and is headed toward its largest quarterly gain since the final three months of 1998. The rally has boosted investor optimism about financial markets to the highest in more than a year, according to a survey by UBS AG and the Gallup Organization. The UBS Index of Investor Optimism jumped to 77 in June from 42 in May. The Federal Reserve meets this week to discuss monetary policy. The fed funds futures markets are fully pricing in a 1/4-point rate cut and are factoring in a roughly 60-percent chance for half a point. The Fed's decision on the overnight lending rate will be unfurled Wednesday, at the conclusion of a two-day meeting to review U.S. monetary policy.

Strong Sectors: none

Weak Sectors: hospital, drug store, aluminum, utility, wireless, gold, airline, paper, auto, banking, homebuilder

Top Stories . . . The dollar rose to a five-week high against the euro in London trading on analysts' expectations that the U.S. Federal Reserve won't cut interest rates by more than a quarter percentage point on Wednesday.

Idec Pharmaceuticals, maker of the cancer drug Rituxan, and Biogen agreed to merge in a stock swap valued at $6.79 billion and form the third-biggest U.S. biotechnology company by sales.

Tenet Healthcare, the hospital chain whose Medicare billing is being probed, lowered estimates for second-quarter and full-year profit because it's facing higher costs and getting lower payments from the U.S. government.

MetLife, the biggest U.S. life insurer, said it would buy John Hancock Financial Services's group life insurance business.

The U.S. Attorney in Philadelphia plans to sue Merck & Co.'s Medco unit, a manager of prescription drug plans, for improperly pushing more expensive medications and canceling orders to meet deadlines.

Quotes of Note . . . ``If the economic data doesn't confirm there's a recovery in the coming weeks we could see some sell-off'' in the stock market, said Rene Clerix, who helps manage the equivalent of $9.2 billion in global equities at Dexia Asset Management.

``M&A activity is going to be one of the things that drives the market,'' said Scott Lynch, co-head of listed trading at Credit Suisse First Boston in New York. ``That is bullish and we are seeing more and more of it.''

Eco Lesson . . . Growth in disposable income is the major driver for consumer spending. Growth in disposable income has been relatively strong, supported by robust real wage growth, tax cuts, and subdued inflation. Low inflation and the continued surge in productivity have combined to generate healthy growth in real wages even though job growth has been weak, in some ways resembling the “jobless” recovery after the 1990-91 recession. Real wages are growing rather than contracting, which should provide adequate support for consumption growth.

Disposable income is about to be boosted further by the income tax cuts recently legislated. Withholding tables will be adjusted beginning in July and child-care rebates will be disbursed soon after. Expect disposable income to reach $8.72 trillion in May 2004, up 7.9% from an expected $8.09 trillion in May 2003. The growth rate in disposable income will be even higher in the peak April 2004/April 2003 comparison due to the tax cut.

Recent magazine and newspaper articles have discussed a contraction in paychecks. The May 26 Time magazine cover story asserted that “paychecks are shrinking for millions of Americans.” The June 8 New York Times magazine criticized the “sink-or-swim economy” using the “Labor Department’s report last month that the average weekly paycheck, once inflation and seasonal factors are considered, shrank 0.3% from March to April of this year.”

In both cases, these stories appear to be using hours worked per week which have been declining. This measure does not take into account taxes, which have also been declining. To get a true picture of the purchasing power of the consumer, the proper measure is disposable income, which factors in wages (which are growing), hours worked per week (which have been declining since at least the 1970s) and taxes (which have declined enough to offset the shorter work-week.)

Critics of the state of the economy often argue that consumers are spent out. Their savings, it is argued, are so low that they might decide to rebuild savings, reducing consumption and putting the economy in serious trouble. Consumer balance sheets are in reasonably good shape.

First, consumers were never as spendthrift in the 1990s as government statistics indicated. The official savings rate did fall precipitously in the late 1990s. But this is a very inaccurate measure of savings. In calculating personal savings, it ignores realized capital gains on equities and homes, and the cash flow benefits of mortgage refinancings. Thus, it severely understates personal savings when capital gains on equities and homes are strong or mortgage rates are falling.

To get a better picture of savings, adjust the personal savings rate by including realized capital gains on equities, just one of the three major adjustments needed to make the series more accurate. (haven’t found a good way to adjust for capital gains on homes or cash flow benefits of lower mortgage payments.) The chart below shows that this adjusted savings rate was relatively stable in the 1990s and, has remained in normal ranges. Consequently, don’t think that consumers are savings-deficient, and so will not choose to rebuild savings going forward at the expense of spending.

Second, consumer balance sheets show a high level of net worth from an historical perspective (well above the 1975-94 trend). Net worth has recently begun to rise again after the stock market losses of 2000-2002.

Venture Capital . . . Visto won an additional round of private equity financing of $20.1 million to bring it to a total of $50.4 million raised in the last 90 days. The company makes personal and corporate mobile access software.

Financials . . . MetLife agreed to acquire the group life insurance business of John Hancock Financial Services. The companies expect the deal to close later this year. MetLife doesn't expect the acquisition to have a material impact on its net income or operating earnings in 2003.

Barron's article highlighted concerns over American Capital's loan portfolio, which is described as "deteriorating" and not reflective in its distinctive "net operating income" measure of earnings. While the company boasts a large dividend yield, the rules governing regulated investment companies allow it to pay out its dividends in nearly all of its net operating income derived from net interest income and fees of its loan and investment portfolio currently at $1.3 billion. The article suggests its unimpressive track record should not allow for its stock to trade at a premium to book value.

iPayment was initiated as Outperform at Wachovia. The firm thinks the company's target market of very small merchants can continue to support profitable organic growth, and continued acquisition activity could be a source of upside as the company seeks to put its new capital to use. The firm sees valuation range of $21-$26.

In the wake of Freddie Mac's accounting issues, the New York Times reports that some money managers and independent accounting experts are now raising questions about Fannie Mae’s profits. The article issaying the company appears to have suffered a big loss last year that was obscured by the complexity of its accounting; these money managers argue that FNM's fair-value balance sheet presents a more accurate picture of its earnings than its income statement, and the balance sheet shows that the company lost billions of dollars when interest rates plunged last summer, nearly wiping out its profit for the year; accounting rules enabled FNM to keep those losses out of its profit report, but the losses will reduce the co's earnings in the future, the managers say.

The Wall Street Journal's "Heard on the Street" column suggests a myriad of big banks could be interested in acquisitions in an effort to grow faster. The article suggests several factors such as stock prices on the rise, low-cost capital at their disposal and internal growth prospects slowing could augur well for acquisitions by large banks. The "buzz" around the industry over banks which could move first consist of Citigroup, Bank of America, Wells Fargo, Wachovia and Bank One. These potential acquisition targets are "super-regionals" such as Fleet Boston, PNC Financial, Comerica, Key Corp and US Bancorp. However, the article suggests big banks going after such these co's would require their shares to trade at a higher multiple to earnings than their targets. The gap between potential acquirers and some of the super-regionals is narrow and in some cases non-existent.

American Home target goes to $23 from $19 at Friedman Billings. The firm also raising estimates following announcement of American Mortgage LLC asset purchase: 2003 goes to $3.45 from $3.30 and 2004 to $2.66 from $2.40.

Oil & Gas . . . Rohm & Haas projected a second-quarter loss of 3 cents to 6 cents a share, including $95 million in after-tax restructuring charges. The per-share impact of the charges wasn't disclosed by the specialty materials products manufacturer. Wall Street has been expecting a quarterly profit of 42 cents a share. Rohm & Haas also said sales are expected to rise by 8 to 10 percent for the June quarter, with currency translations, price increases and acquisitions offsetting volume that's anticipated to be "flat, at best." On the plus side, the Philadelphia-based company said "prices appear to have peaked" for most raw materials.

Rohm and Haas revised 2nd quarter outlook, sees several ex items. The company revised 2nd quarter outlook, now sees loss of $0.03-0.06 despite an 8-10 % Year over Year increase in revenues. However, new EPS guidance, which includes $95 million in after tax charges related to restructuring and asset impairments, does not appear to be comparable to consensus of $0.42.

Energy . . . Merrill Lynch upgraded PG&E to Buy from Neutral to reflect further upside potential in the wake of Friday's better than expected outcome to the company's bankruptcy settlement talks. Under the settlement, PCG remains an integrated utility under state regulation, and in return, the CPUC would agree to a regulatory plan supporting earnings power closer to the levels suggested under PCG's original plan. Target is $26.

Moody's Investors Service said it is considering an upgrade of PG&E subsidiary Pacific Gas & Electric after the utility said it has reached a tentative agreement with California regulators to emerge from bankruptcy. Moody's currently rates the utility's senior unsecured debt "Caa2." "The rating review will assess the prospects for the settlement being adopted along with the financial implications of the settlement to Pacific Gas & Electric Company's future earnings and cash flow profile," Moody's wrote.

Homebuilders . . . JMP downgraded Beazer Homes and KB Home to Market Perform from Market Outperform. The firm is saying the co's remain focused only on the entry-level market, in which they believe will be difficult to find attractive returns over the next couple of years given rising land costs.

Defense . . . IGEN International has been awarded a $23 million contract over four years to provide technology to detect biological warfare agents. The Defense Department will use the company's Origen technology to detect a wide array of agents or toxins in the environment. The company expects revenues to double from sales of biodefense tools. This contract provides for product sales to the U.S. Army of $23 million over the next four years, including $7 million over the next 12 months.

RBC Capital downgrades Benchmark Electronics, Celestica, Jabil, Sanmina, and TTM Technologies to Sector Perform from Outperform, saying the group is becoming susceptible to profit taking given optimistic investor sentiment vs weak order trends.

Education . . . University of Phoenix was cut to Hold from Buy at Legg Mason. The firm cited valuation for the downgrade, but also notes that the magnitude of outperformance this quarter was probably not sufficient to serve as catalyst for further near-term appreciation in either these shares or those of the rest of the postsecondary stocks given lofty valuations and above-average discounting of quarterly outperformance.

University of Phoenix reported 3rd quarter earnings of $0.27 per share, $0.02 better than the consensus of $0.25. Revenues rose 60.2% year/year to $145.8 million versus the $145.4 million consensus. The company sees 4th quarter EPS of $0.26, versus consensus of $0.26, and revenue of $154-155 million, versus estimate of $154 million. The company co also sees 2003 EPS of $0.90 versus consensus of $0.88, and revenues of $527-528 million versus estimate of $526.9 million.

Industrial Equipment . . . Deere was upgraded at Merrill Lynch to Buy from Neutral and adds to their Focus 1 list, based on the following factors: 1) believes the present level of U.S. agricultural equipment sales is a cyclical trough and not part of an ongoing secular decline in the industry, 2) the USDA recently raised its forecast for farm cash receipts on the back of a strong start to the current crop year, which could provide the catalyst for U.S. farmers to buy agricultural equipment beginning in the latter part of 2003 and into 2004; 3) DE has significant operating leverage to an upswing in agricultural equipment sales, 4) DE's valuation is below its long-term historical avg. Target is $59.

Transports . . . Jetblue Airways was downgraded at Bear Stearns to Peer Perform from Outperform based on valuation, as the shares have exceed their $37 target. JetBlue is demonstrating excellent execution of a sound business model. Near term, however, the valuation has become rich given our earnings forecasts (which are at the high-end of the street range). The shares have risen 67% off their low there low this year compared with 25% for the S&P 500 over the same period, and now stand at $39.71, above our $37 target (the high end of target range). (Priced as of close on 6/19/03 -- the time of this writing). This implies a 35x PE multiple on our 2003 EPS estimate of $1.15 and 26x 2004 EPS estimate of $1.55. A fair multiple for JetBlue is in the 26-29x range given its own historical range and the average historical multiple for Southwest Airlines (LUV, $16.91, peer perform), perhaps the best comp in the market. Some argue that JetBlue deserves a higher multiple than Southwest because its growth rate is faster right now, however, we believe the high end of Southwest historical band is appropriate for JetBlue.

Goodyear Tire and Rubber said operating income fell in May in the company's North American business, citing higher raw material costs and weaker prices. The company's business in the European Union posted higher operating income, however. In North America, shipments of consumer replacement tires rose from the year-ago period even though the rest of the global tire industry saw a 4 percent decline in May. The company also said it added to its market share for commercial replacement tires shipped.

Morgan Stanley says they see no signs to suggest a second half recovery is around the corner for the Air Freight & Surface Transport group; unless firm sees a sudden acceleration in the economy or oil prices should drop quickly, there is a greater likelihood that EPS ests will be revised down rather than up. Firm upgrades C.H. Robinson to Equal-Weight from Underweight and downgraded JB Hunt to Underweight from Equal-Weight, citing relative valuations. The firm initiated coverage of Heartland Express with an Equal-Weight rating, saying the stock is not cheap at 21.5x forward EPS, but the co is the best-run carrier in the truckload sector.

Food & Beverage . . . Unilever said its leading brand sales figures for the full year will disappoint at 4 percent because Slim.Fast accounts for a little over 0.4 percent off the growth rate for the year, sharper than expected trade de-stocking including the effect of some retailers facing financial difficulties, which will also hit full year earnings 40 basis points, and the market conditions in Prestige and out of home channels including foodservice have an impact of 0.3 percent.

Heineken said that beer sales have been affected by the conflict in Iraq, poor weather in North America and the SARS epidemic in Asia, without detailing those sales figures, and warned that its net profit excluding non recurring items will now be around the same level as during the first half of 2003. But, it noted, a substantial part of beer sales occur in July and August, and it will not be able to make a full year forecast until then.

J.P. Morgan Securities raised its second quarter sales and earnings per share estimates on Coca-Cola, citing the "more favorable foreign exchange rates during the quarter." It raised its sales growth estimate to 8.2 percent from 6.5 percent.

Tobacco . . . Morgan Stanley raises their targets for Phillip Morris to $62 from $48 and CG to $30 from $25 based on their belief that the stocks' valuations will increase as the market more fully recognizes the stabilization in US cigarette fundamentals and the significant reduction in total legal risk; even in a static fundamental and legal environment, firm anticipates further multiple expansion. Firm also downgrades RJR to Underweight from Equal-Weight, saying the shares appear overvalued given that the co has the industry's lowest profit margin structure and faces the group's most significant competitive challenges.

Retail . . . Walgreen posted net earnings for its fiscal third quarter ending May 31 up 14.3 percent to $296.1 million or 29 cents per share, up from 25 cents per share in the same quarter a year ago. Earnings benefited from a smaller, $9 million LIFO charge in the quarter. The quarter also was aided by a $12 million litigation settlement credit this year, it said. Sales increased 12.6 percent to a record $8.3 billion for the third quarter. The sales increase wasn't enough to offset increased store costs, including payroll, it said. "A major contributor to those payroll costs is the nearly 25 percent increase in our 24-hour store base over the past year," the company said. "We now have 1,049 locations open 24 hours. This is expensive, but it's an important part of our convenience strategy for both today and the future. We believe we're the best-positioned drugstore chain."

99 Cents Only cut to Hold at AG Edwards on valuation.

FTD was upgraded at McDonald Investments to Buy from Hold based on valuation. The firm also cited strong brand recognition, the anticipated migration of floral orders to the Internet, the strong cash flow nature of the business, and low financial risk in the business model. Price target target is $27.

Restaurants . . . Applebee's was downgraded at RBC Capital to Sector Perform from Outperform based on valuation, as the stock has neared their $32 target.

Apparel . . . Nautica cut to Sell at Prudential on view that valuation is extended and that a sell of the co is unlikely. Firm maintains its price target of $11.

Healthcare . . . Tenet Healthcare sees second-quarter results 'significantly below analysts' consensus expectations' due to lower-than-expected revenue trends, increasing cost pressures, industry issues, and company problems, especially past pricing practices 'that have placed the company in an especially difficult position.' Analysts were looking for a profit of 34 cents per share from Tenet in the June period, on average. The company says earnings from continuing operations for the first two months of the quarter were 2 cents per share, a figure that reflects charges totaling 15 cents per share from severance and benefit costs and a change in the discount rate used to value unfunded retirement plan and malpractice liabilities. For 2003, Tenet now projects a profit of 40 to 50 cents per share on revenue of $13.9 billion. Wall Street's consensus estimate is for earnings of $1.40 per share.

Medical Devices . . . SG Cowen's early read into the Cypher launch in U.S. is that stents/procedure, DES penetration, and ASPs all appear more promising than firm previously realized, leading SG Cowen to up overall market estimates: increases 2004 sales by $615 million to $4.95 billion and 2005 by $1.34 billion to $6.2 billion. This is a positive for Boston Scientific.

Lumenis gets FDA clearance for expanded indications of IPL. The firm announced that the FDA has granted clearance to Lumenis Intense Pulsed Light products for the treatment of hyperpigmentation and erythema associated with the skin condition rosacea.

Drugs . . . Novartis received U.S. Food and Drug Administration approval for its Xolair anti-asthma drug. Xolair will be marketed by both Novartis and Genentech.

Forest Labs was upgraded to Buy from Hold at Jeffries and they raised its price target to $65 citing more confidence in the possibility of memantine getting approved by year end. The firm believes last week's sell off, which was due to a study not showing a statistically significant benefit from its combination therapy provides a buying opportunity on weakness with underlying fundamentals that continue to be strong.

Biotech . . . Biogen warned it'll post lower-than-expected second-quarter profit of 32-38 cents per share because of a shortfall of royalties on its Intron drug. A survey of analysts is forecasting earnings of 42 cents per share. Biogen blamed softer royalties from Schering-Plough's INTRON franchise.. The biotech firm confirmed its full-year guidance of $1.72 to $1.85 vs. the $1.79 expected by Wall Street.

Idec Pharmaceutical is buying Biogen in a deal that will leave Idec shareholders with 50.5 percent of the stock of the combined company and Biogen shareholders will own 49.5 percent. Terms set each Biogen exchanged for 1.150 shares of Idec common stock. The companies said the merger agreement has been unanimously approved by the boards of directors of both companies. The transaction is expected to be completed by the end of 3rd quarter or early in 4th quarter of 2003. "Bringing our companies together accelerates both companies' strategic plans and creates a biotechnology leader with the products, pipeline, infrastructure and financial resources to grow faster and create sustainable shareholder value beyond what either company could achieve separately," said CEO James C. Mullen.

IDEC Pharm sees Biogen merger immediately accretive. Excluding merger-related expenses, the transaction is expected to be accretive by 15 plus percent to IDPH cash EPS immediately following closing of the transaction. On a GAAP EPS basis, the transaction is expected to be accretive within two to three years. The companies see Biogen Idec achieving 15% compound annual revenue growth, and approx 20% compound annual cash earnings per share growth in the 2003-2007 period. The combined co will have pro forma 2002 revenue of $1.55 bln and more than $1.5 bln in net cash.

Immunomedics reported progress in cancer therapy at conference. The company announced that four presentations made at this annual meeting of nuclear medicine physicians and scientists indicated progress in the development and use of antibody-based therapeutics for cancer therapy, particularly colorectal cancers.

IDEC Pharma was upped to Buy from Hold at Deutsche. The firm's price target goes to $45 from $32.

Generex Biotech reported details from its study at the Endocrine Society's ENDO 2003 which suggests its proprietary Oralin(TM) insulin formulation could be a viable and safe alternative to injected insulin to treat patients with Type-1 and Type-2 diabetes. The company's product is delivered as a fine spray to the buccal (oral) cavity utilizing its Rapidmist device.

Ribapharm's board calls ICN's unsolicited bid 'inadequate' . Ribapharm also announces that it is adopting a "poison pill."

Biogen was upgraded to Neutral from Reduce at UBS.

Aastrom announced it has received a European patent covering the key culture device components of its AastromReplicell System or ARS. The patent provides coverage of key features of ARS which includes the entire closed loop system for the production of cells for human use.

Alkermes presented results from a Phase II clinical study that showed that patients treated with once-monthly injections of Vivitrex, in combination with psychosocial therapy, experienced a 50% reduction in heavy drinking days compared to patients receiving placebo injections in combination with psychosocial therapy.

Adams Harkness downgraded Tanox to Market Perform from Buy based on their belief that the Xolair launch could ramp slowly due to: difficulty securing reimbursement, an educational effort to inform physicians on how to appropriately use the drug, and concerns about the risk of malignancy and the lack of data supporting the usage in several patient populations; at current levels, firm believes TNOX shares are fully valued and reflect an aggressive peak sales forecast. Price target is $16.

Media . . . XM Satellite was started with a Market Underperform at Rodman & Renshaw. Given the significant execution risk inherent to the company's business plan, and the material funding gap created by debt repayment obligations, Rodman & Renshaw does not believe XMSR shares deserve the premium valuation currently assigned by the market. Firm's cash flow analysis indicates that XM will not generate sufficient cash to meet the repayment obligations of the majority its debt maturing in 2009-2010. XM's enterprise value places a value of 21x 2004 sales and $1,900 per subscriber. Firm notes that DBS and Cable operators are currently valued in the range of $2,000 to$3,500 per subscriber and generate revenue per subscriber 5x that of XM, and are largely profitable today. Firm's $6 target equates to an enterprise-value- to-sales ratio of 12x and a per subscriber valuation of $1,100 based on our estimates for 2004.

Sirius Satellite reached 100k subscriber mark.

The movie starring the company's Incredible Hulk' character opened this weekend and was the top box office draw, taking in roughly $63 million in the U.S. 'Finding Nemo' a Walt Disney release produced by Pixar came in second with $20.5 million in receipts. The 'Hulk' debut, however, fell short of the initial weekend take for last summer's comic book hero hit 'Spiderman.' Universal Pictures, a division of Vivendi, is distributing the 'Hulk' movie. Marvel Enterpriseshas a tie to the franchising of the property.

Southwest Securities blames Marvel's weakness on the weaker-than-expected opening weekend performance of The Hulk. The film was below the opening weekend earnings of X-Men ($86 million) and Spiderman ($115 million). However, firm believes that Marvel will likely earn the maximum possible amount under the deal (from box offices). With a 12-month outlook, firm maintains its Strong Buy rating and $25 target.

The Wall Street Journal reported Vivendi's auction of its entertainment business, which include Universal Studios and USA cable network to be highly anticipated with at least five groups interested in the bidding process. These companies include Liberty Media, General Electric and MGM. In addition, its Universal Music Group has received interest from oil billionaire Marvin Davis and former Seagram Chief Executive Edgar Bronfman, Jr. with the offer potentially being $15 billion.

Hotel & Leisure . . . Ameristar Casinos is raising its second-quarter profit outlook to 45-47 cents per share, ahead of the current forecast of 39 cents per share. The Las Vegas company also raised its 2003 earnings forecast to $1.53 to $1.71 per share, up from the earlier level of $1.35 to $1.59.

Jacuzzi Brands said it continues to see 2003 income from continuing operations of about $35 million or 46 cents per share. It said it expects net sales to rise to about $1.2 billion in fiscal 2003. The global manufacturer and distributor of bath and plumbing products said the continued global economic weakness and political uncertainty could affect its outlook.

Telecom . . . Nobuharu Ono, CEO and president of NTT DoCoMo USA, said in the brutally competitive U.S. wireless market, new services are the best way for the six nationwide carriers to get new customers. Ono's comments serve only the interests of DoCoMo. Expect no carrier to seriously consider a 3G rollout with the accompanying billions of dollars of upgrade costs, just after turning FCF positive. Carriers are just beginning to demonstrate demand for new data services. Current 2.5G networks can already support images.

UTStarcom target raised to $40 from $30 at USB Piper Jaffray.

Consumer Electonics . . . TiVo initiated with a Buy at Adams Harkness. The firm believes the co is fast approaching critical mass, has has an attractive recurring rev-based business model, and can outperform expectations for both new subscribers and subscriber acquisition costs. The firm sees fair value around $13.

Samsung will adopt Echelon's power line technology. Samsung will use the PL 3120 and PL 3150 Power Line Smart Transceivers and the LonWorks platform for its Home Vita home and consumer. Additionally, Samsung will promote the PL 3120 and PL 3150 Power Line Smart Transceivers to both its Home Vita alliance partners and to other electronics companies.

Network Equipment . . . Lehman Brothers raised its rating Advanced Fibre Communications to 'overweight' from 'equal-weight'. The firm said it believes the shares have an attractive valuation.The upgrade was also based on the following factors: 1) firm anticipates the soon-to-be-released FCC Triennial review to be a catalyst for increased Broadband spending by the RBOCs and a generator of higher revs for AFCI in 2nd half 2003 and 2004, and 2) shares are attractively valued; raises 2003-04 estimates above consensus, and raised target to $20 from $15.

British Telecom expands SAN connectivity service with Nortel equipment.

Semiconductor Equipment . . . Taiwan Semi may begin volume production on a low-k dielectric process on its 0.13-micron process in 3rd quarter, gaining an important technological lead over rivals, most notably, IBM.

Agilent announced it sold more than 20,000 of its oligonucleotide-based microarrays in the 2nd quarter and is gaining market share on the microarray industry leader, Affymetrix

Semiconductors . . . WSJ says a movement to build powerful computers from inexpensive components is gaining ground, and new chips from Intel and Advanced Micro could accelerate the pace.

A semiannual study being released today says that 119 of the 500 fastest machines in the world use Intel chips. MPP is the dominant supercomputing method today; and these chips merely increase the power. These systems lack the internal communications speed to compete with the CRAY architecture for the most challenging technical computing problems. Also, remember that CRAY is developing an MPP machine with funds from Sandia that will use the AMD Opteron. This should be visible in mid-2004.

Intel announced a faster P4 with performance-enhancing hyper-threading technology. Said that it will run at 3.2 gigahertz.

Cypress Semiconductor has not restated its pro forma earnings for the first quarters of 2002 and 2003, contrary to "several published reports" that it believes 'misinterpreted its filing of an Amended 10Q" for the quarter ended March 31, 2003. The company said the published stories 'incorrectly assumed" it had restated earnings when it had only amended part of a footnote disclosure on stock options, a change that 'had no impact on reported earnings, GAAP or pro forma, in any quarter.'

Centillium sets new benchmark with ADSL chipset. The company announced the Palladia 220, which is an ADSL 2/ADSL2plus-compatible chipset for customer premises equipment that can deliver up to 50 Mbps and extend the reach 22,000 feet. In addition, it is scalable to provide a full suite of connectivity options such as high speed Wi-Fi.

Boxmakers . . . Dell plans to add three printers to its lineup Tuesday and they are manufactured again by Lexmark. Also plans to introduce two redesigned flat-panel displays.

Cray could be poised for upside in the scientific supercomputing markets according to Barron's. The article suggests the co's unique scientific supercomputing products have garnered renewed interest by potential customers such as secret and "super-secret government agencies" which have more money to spend. The significance of the co's supercomputers can be attributed to its ability to solving staggeringly complex problems in weeks or months as opposed to years. While its market share in this market was 6% as of 2002, a Miller Johnson Steichen Kinnard analyst believes the co will grow market share to "from single digits to high 20's" in light of its products coming to market and upper management's performance running the company.

Software . . . Analysts have started to set initial 2005 EPS estimates for Computer Associates at $1.00, with further upside towards FCF of $1.80+ per share beyond that. Balance sheet will improve measurably along the way. Boosted by its more flexible licensing and focus on higher growing market segments like enterprise mgmt, storage and security, CA has been delivering some of strongest results in large cap SW. Business model transition to accelerate. Fueled by a rising level of contracts up for renewal and rapidly growing subscription fees, bookings and revenues should accelerate in 2004-05 and beyond. Valuation remains compelling. DOJ/SEC resolution remains a key trigger. Still no word on how and when this inquiry will be resolved, but we continue to expect CA to see minimal impact. CA’s FCF multiple of just 11X (implied 9% yield) has plenty of room to expand to catch up with those of other mature, large cap SW stocks like Oracle, Microsoft and SAP, that are trading 18-23X (implied 4.5% to 5.5% yield).

Microsoft is upgrading its SW for hand-held computers, ratcheting up competition with features that include easier wireless communications. Has signed three new licensees: Gateway Inc., Matsushita Electric Industrial, and Victor.

FairMarket agrees to sell assets to eBay. The agreement with eBay is to sell substantially all its technology and business assets for $4.5 million in cash. FairMarket also indicated that it plans to announce a cash distribution to its stockholders of approx $38 million.

First Albany maintains their Neutral rating on Websense based on increasing competition in the company's core market and limited revenue contribution from new products for 2003. The firm says intensifying competition is increasing the pricing pressure, existing customers are asking for bigger discounts, and new customer seat counts are getting smaller.

Documentum was downgraded at ThinkEquity to Equal-Weight from Overweight based on valuation, as the stock has exceeded their $21 price target.