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This market is like the summer blockbuster “Die Hard”. In Wednesday’s session, stocks rose after Merrill Lynch told investors to buy shares of Microsoft, the world's largest software maker, sparking a rally in computer-related companies. The S&P 500 Index added 11 points (+1.2%) to 993. The DJIA climbed 101 points (+1.1%) to 9142, with Wal-Mart leading the gain and 27 of the average's 30 stocks advancing. The Nasdaq Composite jumped 38 points (+2.4%) to 1678, the highest since May 2002. Government figures showed an unexpected increase in U.S. factory orders in May. Some investors predict the lowest interest rates in 45 years and a $350 billion package of federal tax cuts will spur spending by consumers and businesses. Investors will get more data on the economy at 8:30 a.m. tomorrow. A government report probably will show no change in payroll employment for June after the loss of 342,000 positions in the previous six months, according to economists surveyed by Bloomberg. U.S. stock exchanges close at 1 p.m. New York time tomorrow and will remain closed Friday for Independence Day.

Strong Sectors: software, semis, restaurants, computer storage & peripherals, electronic manufacturing, biotech, communications equip, insurance broker, leisure prods, healthcare distribution

Weak Sectors: dept stores, oil & gas services

Top Stories . . . Orders placed with U.S. factories unexpectedly rose in May as demand strengthened for industrial machinery and petroleum products, government figures showed.

Baxter International, the world's biggest maker of blood-disease treatments, plans to fire about 2,500 workers and shut 26 plasma-collection centers as the company scales back production amid falling prices.

The U.S. Securities and Exchange Commission, which polices bookkeeping at 15,000 publicly traded companies, fell short of accounting standards in its recording of employee costs, an internal audit said.

PeopleSoft said second-quarter profit and sales topped its forecasts after the business-software maker offered customers refunds in case Oracle succeeds in its $6.3 billion hostile takeover bid and ends product support.

Quotes of Notes . . . ``Everything's in place to continue the rally into the third quarter,'' said Dan Lewis, who helps manage $2 billion at Trusco Capital Management in Orlando, Florida. ``The tax cuts are in place and interest rates are low. All eyes will be focused on second-quarter earnings'' for evidence profit growth is accelerating, he said.

``Computer spending should pick up as the economy recovers, and Microsoft is one of the companies to profit from that,'' said Torsten Gruendel, who helps manage $23 billion at Adig Investment in Frankfurt and is considering buying more Microsoft shares. ``Tech companies have slimmed their businesses to a point where growing demand will directly improve the bottom line.''

Mortgage Rates . . . The average contract interest rate for 30-year fixed-rate mortgages rose to 5.23 percent in the week ending June 27, up from 5.10 percent one week earlier, the Mortgage Bankers Association of America said. Refinancing activity decreased to 75.6 percent of total applications, from 75.8 percent the previous week.

Gurus . . . Prudential strategist, Ed Yardeni, was on the Kudlow-Cramer Show, predicting a second-half economic pace in the 4%-to-5% range, while adhering to his year-end Dow call of 10,500. Ed is also pleased with the quality of earnings, noting the diminishing level of acquisition-related write-offs. Moreover, the valuation relationship between stocks and bonds clearly favor stocks.

Ralph Bloch, technical analyst for Raymond James, remains constructive, but would prefer to see a lateral phase for a month or two that would broaden the base. He feels technology stocks will provide leadership.

Report Card . . . U.S. stock mutual funds rose 15% in the second-quarter, their best performance since the end of 1999. Gains were led by funds investing in internet and telecom stocks. The stock fund recovery has provided a lift for money management companies like T.Rowe Price and Janus Capital.

Eco Speak . . . New orders for factory goods unexpectedly rose 0.4 percent in May. Economists had predicted order to remain flat in the month. In April, overall factory orders fell a revised 3.0 percent after the department initially reported a 2.9 percent drop. Non-defense capital goods, a key component of the monthly report, fell 0.8 percent, marking the second consecutive monthly decline. Weak demand for transportation and defense orders brought down overall orders. Excluding transportation, new orders for factory goods rose 0.8 percent in the month after falling 2.7 percent in April. Excluding defense, new orders for factory goods rose 0.8 percent in May following a 2.7 percent decline.

Comment . . . The S&P 500 just delivered its best quarterly performance since 1999. That said, a closer look at returns shows that the stock market ended the second quarter on a soft note. Indeed, the S&P 500 gained just 1% in the month of June, following 8% and 6% gains in April and May, respectively. Of course, it is normal for equities to lose a little steam following such tremendous advances. Nevertheless, virtually every indicator we look at is still suggesting overbought conditions for equities at this stage. In other words, the market is poised for a pullback, and the path to our 2003 S&P 500 year-end target of 1050 may very well involve a return to the 900 area first.

The most challenging aspect of the coming quarters will probably prove to be the earnings backdrop. The fundamentals do not support analysts’ overly optimistic expectations of 12% earnings growth in 2003. That’s not to say that supportive elements for S&P 500 earnings do not exist. For instance, the soft dollar has helped a great deal, and will likely continue to do so in the second half of year. Also, oil prices and fiscal stimulus could lend companies a hand in their quest to meet earnings estimates. Simply put, earnings have a tough row to hoe in the second half of 2003. The good news is that fair valuation for the market could provide some support against declining estimates.

Despite the technical and fundamental challenges facing the stock market near term, we remain optimistic about the outlook for equities. The market’s rally this past month marked a major inflection point that will be followed by more moderate equity returns and a change in leadership away from the small-cap and high-beta segments. Indeed, a trough in interest rates and a loss of momentum in earnings growth will prove to be a powerful influence on the internal trends of the equity market, an influence that should benefit large companies and reignite investor interest in companies with solid fundamentals. Worded differently, beta will soon become passé, and expect pundits to start using terms like earnings, valuation, and dividends once again.

Dividend . . . The spread between the S&P 500 dividend yield and the three-month T-bill note is negative and at its lowest level in over 40 years. Meanwhile, more than 50% of S&P 500 stocks now pay a dividend yield greater than the three-month Treasury bill. At this juncture, the stock market, or at least the high-dividend-paying segment, is becoming an increasingly competitive asset class for income-oriented investors as lower bond yields continue to diminish the allure of fixed-income investments.

Financials . . . The Wall Street Journal's "Heard on the Street" column discusses the contentiousness by the street over Freddie Mac given its recent restatement of earnings and departure of three top executives. The stock is currently trading at a price-to-earnings ratio of six, which makes it the second most inexpensive stock in the S&P 500 index based on trailing twelve months of earnings. The article suggests broad consensus among money managers is that FRE shares will not fall further and the govt would not let it fail. In addition, investors are concerned about the earnings restatement and the impact on the stock going forward.

Oil & Gas . . . Merrill Lynch out of Asia downgraded PetroChina to Sell from Neutral. The firm is saying its E&P biz faces some serious challenges: oil reserves and production are both declining at a time when "all up" costs are rising, which coincides with an expected fall in oil prices over the next few years.

Homebuilders . . . U.S. home builders are more optimistic about business in the second half of the year. The National Association of Home Builders is now forecasting a record 985,000 new home sales in 2003, up about 1 percent from last year's record 973,000. The group expects to start construction on 1.70 million homes. Improved consumer confidence, the income tax cut and the interest rate reduction from the Federal Reserve are keeping buying conditions favorable, the trade group said Wednesday. The group expects the yield on 30-year mortgages to average about 5.30 percent this quarter and 5.50 percent by the end of the year, up modestly from current levels.

M.D.C. Holdings received net orders for 3,665 homes in the second quarter compared with net orders of 2,753 homes in the same period in 2002. It said it ended the second quarter with a backlog of 6,341 homes with an estimated sales value of $1.63 billion, compared with a backlog of 4,935 homes with an estimated sales value of $1.300 billion at June 30, 2002.

Transports . . . Atlantic Coast Air update on talks with UAL, regarding new agreement to replace existing United Express Agreements between the parties, have not yet resulted in an agreement. Co also says it "cannot predict the timing or outcome of any decision by United" any time soon.

Merrill Lynch raised its earnings estimates or narrowed loss forecasts for the June quarter on eight airlines, citing "modestly better revenues combined with more substantial cost reductions." Michael Linenberg also trimmed his industrywide pretax loss forecast to $1.6 billion, compared with the year-ago quarter's $1.9 billion loss. Linenberg noted that the industry's main measure, the Amex Airline Index (XAL), has soared 110 percent vs. the S&P 500's 23 percent jump since a March 11 bottom. He sees more ahead with a "gradual improvement in fundamentals" industrywide, he said. The eight airlines are AirTran, Alaska, America West, Continental, Delta, ExpressJet, JetBlue and Southwest. Price targets on three carriers' shares also were raised: America West to $9 from $7, ExpressJet to $18 from $14, and Frontier to $12 from $9.

America West Airlines reported revenue passenger miles of 1.9 billion for June, up 3.5 percent from the same period a year earlier. Passenger load factor for the month reached 81.6 percent, a jump of 4.8 points from last year's equivalent period. "In addition to our impressive June traffic results, we experienced a significant year-over-year improvement in yields compared with June 2002," said executive vice president Scott Kirby. "This increase in both load factor and yield is a further demonstration of the success of our business-friendly fare structure." For the second quarter, revenue passenger miles rose 6 percent to 5.5 billion, while load factor came in at 78.9 percent.

The Wall Street Journal reports AMR's American Airlines close to making decision on "shrinking" or even closing airport facilities, reservations centers, and maintenance bases.

Southwest Airlines said revenue passenger miles in June 2003 rose 5.2 percent increase to 4.4 billion and that available seat miles increased 3.7 percent to 5.9 billion. Its load factor -- a measure of seats filled -- for the month was 74.6 percent, up from 73.5 percent in the year-ago period last year.

June auto sales were slightly better than our expectations with a SAAR of 16.4M units, as it appears that the equity gains in the market, home mortgage refinancing, and aggressive incentives has the consumer out shopping for a new car; sales were roughly flat from a year ago and up 2% sequentially. Although sales were respectable, analysts remain concerned that the manufacturers will find it difficult to regain pricing even in a better economic environment, as the consumer has been conditioned to view incentives as "normal" pricing. The Chrysler Group of DaimlerChrysler led the Big Three as it has taken price leadership; GM was up slightly

with strong gains on the truck side and Ford was roughly flat as it prepares to launch its all-new F-150; the foreign players continued to outperform, garnering greater market share. While inventories remain fat, do not expect and major production cuts for the third quarter, as we are currently in summer shutdown any it is likely that the Big Three does not want to be short heading into UAW contract negotiations; nonetheless, could see weak production numbers in the fourth quarter.

Industrial Equipment . . . Caterpillar announced today that it has reached a non-binding agreement in principle to acquire Terex's worldwide electric drive mining truck business, and for Terex to acquire Caterpillar's 5000-series mining shovel intellectual property. Both companies have started the due diligence process and the negotiation of a definitive agreement. The electric segment provides an opportunity for growth in both OEM and aftermarket. Per industry sources, the electric drive segment accounts for about 40% of the installed base of mining trucks and is currently led by Komatsu-Dresser. While there may be some overlap among electrical and mechanical drive trucks, the former has its own niche of applications (e.g., deep surface mining). This as as strategic transaction as it will allow Caterpillar to: 1) offer a full array of mechanical and electric drive trucks to its customers, 2) increase its highly profitable aftermarket business, and 3) further strengthen its competitive position against Komatsu worldwide, adding to its recent market share wins at Phelps-Dodge, Freeport, and BHP.

Food & Beverage . . . Monterey Pasta expects second-quarter earnings of 2 to 3 cents per share, below the average estimate for a profit of a nickel per share. But the gourmet food firm said sales for the period rose 10 percent, slightly above Wall Street's consensus view. Monterey attributed the earnings shortfall to product transition issues with a major customer, start-up issues related to its new packaging, and legal fees stemming from securities lawsuits.

Constellation Brands (brand alcohol) reported first-quarter earnings of $47 million, or 49 cents per share, a penny ahead of the average estimate. The company attributed the better than expected results to the benefits of its Hardy acquisition, increased beer sales, and lower average spirits costs. Total sales jumped 19 percent in the latest three months to $772 million from $650 million in the same period a year earlier. Looking ahead, Constellation Brands forecast operating earnings of between $138 million and $145 million for the second quarter, and $560 million to $580 million in fiscal 2004. Per share figures weren't provided.

Restaurants . . . California Pizza announced 16.2% increase in revenues for 2nd quarter. The company announced its revenues increased 16.2% to $87.9 million versus consensus $89.79 million. Comparable restaurant sales were up 2.3% for the three month period. The co cited stated its comfortable with its previously announced range of $0.21 to $0.23 per share given same store sales results.

PF Chang's reported 2nd quarter revenues grew 34% to $136.6 million consensus $133.35 million. PFCB will report 2nd quarter results and provide an update to full yr guidance on July 23.

Retail . . . UBS downgraded Weight Watchers to a "neutral" rating from a "buy" as shares are now within seven percent of its new $50 one-year price target. "We believe Weight Watchers' run-up since its June 10 investor meeting reflects optimism around North American program innovations planned this fall, as well as the opportunity to expand attendance and product sales in the territories acquired from the WW Group. While also optimistic, we see the good news fairly reflected in current prices," the firm told clients.

Merrill Lynch added Wal-Mart to its "Focus 1" list on belief that comparable store sales should accelerate over the next four quarters and benefit from easy comparisons. Additionally, Merrill feels that the retailer's excessive inventory position at the end of the first quarter should be largely corrected by the end of the second quarter.

Walgreen reported June sales surged 14.4 percent to $2.7 billion from $2.36 billion in the same period a year earlier. Same-store sales jumped 10.1 percent in the quarter.

Hollywood Entertainment raised its outlook for the second quarter to earnings of at least 29 cents per share, above its previous projection for a profit of 28 cents per share. Nine analysts l are currently looking for earnings of 29 cents per share, on average, from the company in the period. The video rental firm said same-store sales jumped 11 percent for the quarter, driven by a 4 percent increase in rental revenue, and improvement in merchandise sales from its new Game Crazy departments. In addition, it also said it expects to 2nd quarter earnings to be $0.29 per diluted share versus its prior guidance of $0.28 per diluted share.

JP Morgan upgraded bebe stores to Neutral from Underweight and raises 2003-04 ests slightly above consensus, as firm now feels that the co should be able to maintain selling velocity, as demand continues to exist for its mix of bebe-labeled fashion merchandise; also, firm believes that the co will be well-positioned for the fall selling season with a strong suit offering.

Goldman Sachs maintained an Underperform on RadioShack.While wireless number portability will likely aid RSH sales and earnings in 2004, firm remains concerned about other areas of the business where sales have been sluggish, and handset sales could pause in late 2003 in anticipation of number portability in 2004.

Weight Watchers downgraded at UBS to Neutral from Buy based on valuation, as the shares are now within 7% of their new $50 target (cut from $55).

Healthcare . . . Molina Healthcare, a managed care company, prices its IPO at $17.50 per share, near the top of the $16-$18 range. Banc of America is the lead underwriter.

Drugs . . . Cubist Pharma purchased 1% reduction in Cidecin royalty rate from Eli Lilly. A reduction in the royalties payable to Lilly on net sales of Cubist's investigational antibiotic Cidecin, should it gain regulatory approval . Under the terms of the transaction, Cubist will issue to Lilly $8.0 million in Cubist Common Stock, with registration rights.

Gilead Sciences won Food and Drug Administration clearance for its new anti-HIV drug, Emtriva, which is to be taken once a day. Foster City, Calif.-based Gilead already markets Viread, a leading treatment for the virus that causes AIDS.

Medical Devices . . . Baxter International warned it expects to take a second quarter charge of about $200 million, or 30 cents a share after-tax to write down facilities and for severance costs for an estimated 2,500 employees, representing nearly 5 percent of Baxter's global workforce, as it plans to close 26 plasma collection centers in the U.S. It affirmed second quarter 2003 sales growth in the range of 8 to 10 percent, and that earnings per diluted share from continuing operations, including the estimated 30 cent a share special charge, will be in the range of 10-12 cents. It warned on the full-year, to reflect expectations of lower growth in its BioScience business, it said.

Biomet reported 4th quarter earnings of $0.30 per share, in line with the consensus of $0.30; revenues rose 15.8% year/year to $377.2 million versus the $373.0 million consensus. The company also declares cash dividend of $0.15 per share, payable July 18 to shareholders of record at close of business on July 11, as company's Board authorizes stock buyback of up to 2 million shares over next 12 months.

Biotech . . . WR Hambrecht upgraded Biogen to a "buy" rating from an "attractive" on valuation and on belief that near-term catalysts will drive shares of the biotech company, which has agreed to merge with Idec Pharmaceuticals. "We believe the pending merger with Idec strengthens the overall business prospects for Biogen and provides near-term earnings growth driven by [cancer treatment] Rituxan," Hambrecht told clients in a research note. The firm also believes that clinical news from the late-stage trial of Antegren in Crohn's Disease during the third quarter may help rekindle investor enthusiasm for Biogen.

ICOS Corp provided update on Cialis submission . It submitted a response to the FDA of requested data on Cialis, its investigational PDE5 inhibitor in development for the treatment of erectile dysfunction. Also, during 2nd quarter, the FDA advised Lilly ICOS that it has accepted the submission as complete. This comes after an approvable letter received in April 2002. Commenting on this news, JP Morgan says it expects ICOS shares to trade up on these comments and remain relatively strong until product approval. Firm rates stock a Neutral.

WR Hambrecht upgraded Biogen to Buy from Hold based on attractive valuation, near-term news flow, arbitrage on the pending merger with IDEC Pharma, and the overall negative sentiment toward the co in an otherwise bullish environment. The firm believes the pending merger with IDPH strengthens the overall business prospects for BGEN and provides near-term earnings growth driven by Rituxan. Also, near-term clinical news from the Phase III trial of Antegren in Crohn's Disease in 3rd quarter could help rekindle investor enthusiasm for BGEN. Target is $46.

The Bangkok Post (Thailand) is reporting today that VaxGen (VXGN) has pulled financial support for an ongoing clinical trial there of its experimental AIDS vaccine, AIDSVax. The story quotes the prinicipal investigator in the trial, who says he was unofficially informed that VaxGen would no longer pay for the study. VaxGen's U.S. study of the AIDSVax vaccine failed in the United States earlier this year. The Thailand study is being tested on 2,500 former drug users.

Banc of America upgraded Intermune to Buy from Hold. The firm is saying the replacement of the CEO is a good start to rebuilding credibility with investors; in addition, board member Warburg Pincus has been involved in the sale of its other biotech holdings and could orchestrate a sale of ITMN. The firm notes that the stock trades modestly above the net present value of Actimmune alone and ignores net cash of $100 mln ($3/share) and value of the pipeline; raises target to $22 from $18.

Digene studies demonstrate superior sensitivity of HPV testing. The firm announced the publication of two new ASCUS/LSIL Triage Study papers in the American Journal of Obstetrics and Gynecology. The studies demonstrate the superior sensitivity of HPV testing with the Hybrid Capture 2 High-Risk HPV DNA Test for the management of women with abnormal Pap test results.

Media . . . Interpublic Chief Financial Officer Sean Orr will leave his post at the end of August. Orr, who is to be replaced by the current chief operating officer, Chris Coughlin, wants to "move onto a new phase in his career," according to Frank Borelli, the company's presiding director.

Westwood One (radio network and provides traffic reports to hundreds of stations around the country) warned of lower-than-anticipated revenue in the second quarter. WON noted that soft ad sales continued longer into 2nd quarter than expected, with both the network and traffic businesses soft, with more notable weakness in the 10-second spot (traffic) business. WON is starting to see a significant improvement in its businesses, and both businesses are pacing positively in 3rd quarter. 2nd quarter consensus estimates called for Revenue and EBITDA Growth.

DBS and Satellite Radio sectors fundamentals continue to strengthen. Expect to see early signs of recovery in the FSS sector boosted by government services. Expect Satellite TV (DBS) to continue capturing market share from cable as both DBS companies serve more local markets. Fixed Satellite Services (FSS). Although most expect continued weakness in the FSS market until early 2004, demand by government agencies and news organizations provides upside. Contract wins put ViaSat on track for a year of record orders. XM Satellite pre-announced total subs of 692,253 as of June 30 and net adds of 206K close to our estimate of 190K. SIRI hit 100K subs at the end of May and we expect 38,000 net new adds in Q2. Both cos have taken further steps to eliminate their funding gaps.

Telecom . . . EarthLink was cut to Sector Perform at CIBC as the stock has moved within 5% of firm's price target. The firm also is trimming estimates following recent retail price declines by the RBOCs and long distance companies for DSL and dial-up ISP services. The firm's 2003 estimate goes to $0.15 from $0.18 and 2004 to $0.30 from $0.39.

Storage . . . The Wall Street Journal reports EMC is purchasing a product line from BMC Software in an effort to go target corporate software customers it has a "hard time reaching". The financial terms of the deal have not been disclosed with EMC acquiring the rights to BMC's Patrol Storage Manager.

EMS . . . Benchmark Electronics continues to expect second-quarter revenue to meet or exceed analysts' expectations of $443 million in revenue and earnings-per-share of 44 cents. The company will unfurl its second-quarter results on July 24.On April 22, BHE gave guidance of $430-$450 million in revs with EPS of $0.42-$0.46.

Network Equipment . . . The new NOK 2280 is now widely available for use on the Reliance network in India. Shipments should begin shortly to China Unicom, now that NOK has received government approval to sell its CDMA product in China and believe that Nokia 1xRTT phones will be available at Verizon by year end.

Handset market forecast of 430 million. Inventory overhang in China remains a concern. Recovery in India & China likely to accelerate shift to low end. UK, U.S. store checks show discounted high-end phones (ASP’s of $200 with aggressive discounting), slow 3G. Wireless food chain news flow likely to remain cautious thru September. Believe lingering competitive and supply issues are likely to keep sector underperforming relative to data networking and telecom wireline equipment. Qualcomm trades in tandem with news flow. In 2nd quarter, we’ve seen 5 company pre-announce shortfalls related to SARS. Motorola indicated that it would take through the rest of the year to return to normal levels, citing slightly more CDMA inventory than GSM. Nokia indicated that it was seeing some impact from SARS, slower high-end adoption and greater shift towards low-end subscribers.

Nortel was selected by China Railcom to provide packet voice equipment.

Semiconductor Equipment . . . Novellus was cut to Underweight at JP Morgan and cuts their 2004-05 ests well below consensus based on lower rev and reduced margin expectations, as they expect pricing pressure to linger as well as a drag effect from under-performing product lines.

Orbotech received a 'major' order from Taiwanese LCD maker. The firm announced receipt of a major order for ten additional automated optical inspection systems from AU OPTRONICS, a leading Taiwanese manufacturer of thin film transistor liquid crystal displays.

Semiconductors . . . Texas Instruments will begin shipping samples of its own 1xRTT chip in Sept. and believe design wins could follow soon thereafter. Believe TXN’s success will be relegated to the lowend and its greatest threat is pressure on chipset pricing.

Marvell Tech VP Sutardja Pantas sold 200,000 shares between 6/27 and 7/1 at prices ranging from $33.30-$35.22. Ownership 11.276 million.

Boxmakers . . . During HP's Spring Analyst meeting on June 3rd, EVP HP Printing and Imaging Vyomesh Joshi "VJ" announced Big Bang II -- a roll-out of over 100 consumer products and solutions for the back-to-school and holiday selling season. A continuation of Big Bang I launched in June 2002, HP is capitalizing on its lowered cost structure (7%-9% lower than HP's previous platform) on inkjet printers and consumables to launch leading-edge technology printers with competitive pricing. Since the launch of Big Bang last June, HP has grown its U.S. retail inkjet market share from 52% of overall units to 64% in May. In the important all-in-one segment (all-in-one printers consume up to 25% more ink than standard inkjet printers), HP has grown its market share from 60% to 74% over the same period. Finally, in the fast growing sub-$100 color inkjet market, HP's share has risen from 42% to 52%.

HP's success with Big Bang I has enabled the company to post operating margins in its Imaging and Printing division above 16% for the past five quarters. However, the company continues to stick to its guidance of operating margins in this division in the range of 13% - 15%. While reiterating that HP does not intend to be the price leader but instead rely on quality and brand name to justify a slight price premium to competitive products, we have nonetheless seen in recent weeks HP respond quickly and aggressively to new product roll-outs by competitors in key market segments. For example on the same day that Lexmark unveiled its X75 PrinTrio all-in-one inkjet printer for $79, HP slashed the price of its PSC 1210 all-in-one from $149 to $99. The all-in-one inkjet printer market comprises approximately 40% of U.S. printer retail unit sales. Within the all-in-one segment, sub-$100 printer sales have skyrocketed from 10% of the all-in-one unit sales in early May to 30% in early June.

Software . . . Since the commercialization of Unix by AT&T in 1982, the operating systems's source code was not available to the public. Although still taught at universities, Unix source code was tightly protected to ensure that the technology could not be brought outside the university computer science laboratories. Price sensitive PC users had no choice but to use MS-DOS as a

PC operating system. Unix vendors, including SCO, continued to demand high prices ensuring little acceptance at the small PC user level. Unix itself continued to be very fragmented with applications written for one flavor of the operating system not compatible with another. This fragmentation added to the costs of deploying a Unix system.

The Linux operating system was developed by Linus Torvalds, a graduate student at the University of Finland, in 1991. Thousands of programmers (now called the Linux development community) contributed patches and new features to the kernel developed by Linus. Note that Linux is not based on any AT&T or BSD code base.

PeopleSoft raised its second-quarter profit target to 13-14 cents per share on an adjusted basis, vs. the current target of 10 cents per share. PeopleSoft said its revenue will be $490 to $500 million, vs. the expectation of $443 million. "This morning we announced that against all odds and odds makers, under the most challenging conditions a company can face, PeopleSoft not only met but significantly exceeded our original financial guidance."

J.P. Morgan Securities overnight cut Check Point Software to underweight, citing revenue concerns and expectations of market share losses. It also cut Symantec to underweight, telling clients "antivirus represents over 60 percent of revenue, and this is a primary category that we expect will not see incremental spending as the economy picks up." It also raised Netegrity to overweight, telling clients that it's "starting to see our thesis that access control security solutions like what Netegrity offers is gaining momentum, while defensive security solutions like antivirus and firewall have peaked."

Merrill Lynch put a $30 price target on Microsoft and raised its fiscal 2004 earnings per share estimate to $1.09 from $1.04, ahead of the software maker's guidance, "on the basis of expense management." Merrill analysts said: "Given the potential for EPS upside, a possible increase in the dividend, and the valuation disparity to its peer group we are raising our investment opinion on Microsoft."

Microsoft is unveiling plans to offer more than 60 best-selling books for free download over the summer as part of a promotion its Microsoft Reader product. The software giant and Dow component noted that more than 19,000 commercial titles are now available for Microsoft Reader.

USB Piper Jaffray boosted its rating on MRO Software (asset management software) to "strong buy" from "outperform." The firm said it's got increased confidence in the company's performance in the June quarter following positive channel checks, and that the valuation of the stock is attractive. Analysts are currently looking for a profit of 4 cents per share from MRO with revenue of $42.3 million in the period, on average.

Business Objects was upped to Outperform at RBC. The upgrade from Sector Perform follows recent share price contraction, leaving stock at an attractive level (1.8x 2003 revs and 25x 2004 EPS). Price target $26.

In a potential blow to Microsoft, Matsushita, Sony and six other big consumer-electronics companies set up a forum to encourage the use of Linux to run gadgets such as audiovisual equipment and mobile phones.

JP Morgan expects that as the economy improves and IT spending increases, the bulk of incremental IT security spending will go to access control technologies, and should consequently drive up estimates for these company's while firewall and antivirus co's see numbers remain unchanged. The firm upgraded Netegrity to Overweight from Underweight, upgrades Sonic Wall to Neutral from Underweight, and downgrades Check Point and Symantec to Underweight from Neutral.

Lawson Software teams with Sun Microsystems, inks multi-million dollar deal with Pathmark. Sun Microsystems will provide scalable, high-performance solutions to the high-transaction volume retail market and enable retailers to pre-test Lawson solutions on Sun systems to solve integration issues, help speed time to deployment and more quickly realize a return on their IT investment. Separately, the company announced a multi-million dollar deal with Pathmark Stores.

Symantec was cut to Underweight from Neutral at JP Morgan.

The market is looking up in a big way Stan. Short term there is still more room to rise in my opinion but longer term it's going to take continued improvement in the way of a business led economic recovery.

JMHO, RtS