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The DJIA fell, led by shares of McDonald's after Chief Executive Officer James Cantalupo died of an apparent heart attack. Microsoft rose, pushing the Nasdaq Composite Index higher for the first day in five. The DJIA lost 14 points (-0.1%) to 10,437, for its first drop in three days. The Nasdaq increased 24 points (+1.2%) to 2020. The S&P 500 added 1 point (+0.1%) to 1135.84. Computer-related shares contributed the most to the gain. About the same number of stocks rose and fell on the New York Stock Exchange. Some 1.19 billion shares changed hands on the Big Board, 19 percent less than the three-month daily average. About a third of S&P 500 members release results this week including Pfizer, the world's largest drugmaker, and Microsoft, the biggest software maker.

Strong Sectors: internet, networking, semiconductor, software, telecom, biotech, industrial, retail
Weak Sectors: banking, broker/dealer, drug, gold, insurance, oil services

Top Stories . . . The index of leading U.S. economic indicators rose 0.3 percent in March, a sign the expansion has gained momentum. The year-over-year increase in the measure of where the economy is headed is the biggest in two decades.

3M, the maker of Scotch tape, said first-quarter earnings rose 44 percent as the economic rebound and new products helped boost sales of computer touch screens and safety equipment. The company raised its 2004 profit forecast.

Computer Associates fired nine employees in its legal and finance departments after former Chief Financial Officer Ira Zar and two other officials pleaded guilty to securities fraud.

McDonald's Chairman and Chief Executive James Cantalupo, who in 16 months rejuvenated the world's largest restaurant chain's U.S. sales after coming out of retirement, died of an apparent heart attack in Orlando, Florida. He was 60.

Halliburton, the world's largest oilfield-services provider, said a construction project off Brazil's coast that is more than a year behind schedule cut first- quarter profit by $62 million, or 14 cents a share.

Quotes of Note . . . ``The market's incorporated a lot of the good news. A lot of investors aren't surprised by what they're seeing. We're being cautious.'' Chris Matlock, whose Lighthouse Opportunity Fund has returned 55 percent in the past year, double that of the Standard & Poor's 500 Index.

Earnings of Note . . . With 101 companies in the benchmark having reported, first- quarter earnings jumped 19.2 percent according to Thomson Financial. Profits are beating analyst estimates, on average, by 6.8 percentage points, or more than double the historic average, Thomson said.

Gurus . . . . Rod Smyth, strategist for Wachovia, has reduced equity exposure about 4.0%, particularly in the small caps, and he plans to hold that money in cash. His equity exposure is now very slightly above neutral. Rod is also dramatically reducing exposure to emerging markets. He sees stocks in a trading range between S&P 1050 and 1170, with upside to 1250, if geopolitics turns for the better.

In a Barron's interview, Ned Davis also expresses some jitters, noting that sentiment is still too bullish, and supply-and-demand is worsening. He agrees that the first Fed rate hike will not be damaging, and only after a series of hikes does the market begin to gag. Nevertheless, Davis is still 70% long in stocks, although he is hedged in long puts.

On the Nightly Business Report, Mike O'Higgins rolls out his "Dogs of the World." The author of "Dogs of the Dow" says contractions can buy under-achieving global indices. His favorites are Brazil (EWZ), Germany (EWG), Russia (TRF), Singapore (EWS), and South Korea (EWY).

On the Rukeyser Show, recommendations on Tribune, Dell, Johnson & Johnson, Eli Lilly, TXU Corp., Consol Energy, American Power Conversion, and All-State

Barron's highlights TheStreet.com founder James Cramer's picks. Mr. Cramer's sexy six are: WebEx, Netflix, Amedisys, Armor Holdings, XM Satellite Radio and Taser International. The anointed half-dozen also share what Mr. Cramer plainly believes to be a great virtue, they are not household names. Finally, what they have in common are valuations that, when they're not elevated, are absurd. Although Mr. Cramer exudes enthusiasm for all six, he cautions, in the interest of prudence, against buying every one of them; instead, he prescribes "one or two" as part of a "discretionary portfolio," which he thoughtfully explains "as not meant for retirement but meant to augment income." The article notes that Mr. Cramer gave in Feb 2000 a similar group of stocks, entitled with characteristic restraint, "The Winners of the New World." Here are the fabulous 10 stocks Mr. Cramer touted so grandly on Feb. 29, 2000: 724 Solutions, Ariba, Digital Island, Exodus Communications, InfoSpace, Inktomi, Mercury Interactive, Sonera, Verisign and Veritas Software.

Of Note . . . The WSJ's "Tracking the Numbers" column discusses interest rate concerns and financial company's profits possibly being pressured. There are four pure-play financial firms in the DJIA index, but there's plenty of financial exposure among other component company's in the 30-stock index. Caterpillar's financial-products division accounted for 23% of overall profits last year. IBM derived 11% of its 2003 pretax earnings from its financing division. About half of General Electric's profits came from its General Electric Capital division. Nearly three-quarters of General Motors's came from its financing and insurance operations. Deere & Co.'s financial-services group accounted for 51% of its overall profits in 2003. Harley-Davidson's financial-services division accounted for 16% of the company's 2003 operating profit. Ford Motor would have shown a loss in 2003 if it not for the earnings of Ford Credit. If the Federal Reserve were to begin raising its Fed-funds target rate, and short-term rates were to climb faster than long-term rates, the yield curve would flatten and trouble could be in the offing. Deutsche Bank estimates that if the Fed were to raise its target rate to 2% from the current 1%, the move would cut earnings at Ford Credit by $153 million. William Gross, managing director at Pacific Investment Management Co., says, higher rates mean the product nonfinancial company's sell -- "whether it's a car or a house -- gets more expensive."

China . . . China’s growth rate will moderate, but remain fast.

• On April 15, China reported 9.7% GDP year-over-year growth for the first quarter. This is consistent with the 19.4% growth in March’s year-over-year industrial production reported on April 9.

• On April 12, China raised its reserve requirement to 7.5% from 7%. For poorer-quality banks, the reserve requirement is 50 basis points higher, at 8%. In our view, this is a moderate step aimed at controlling credit excesses in China’s smaller banks, and will have only a small effect on overall growth. Expect additional measures along these lines, but don’t think they constitute a meaningful “monetary tightening.”

• China’s CPI inflation has moved from negative territory in 2001-02 to positive territory in 2004. March CPI registered 3%, vs. 2.1% in February (which was lower in large measure due to Lunar New Year calendar effects).

• Taken together, some are concluding that China is overheated, is taking steps to choke off growth, and faces a hard landing. Expect additional measures to restrain growth (particularly in new investment), but not necessarily a hard landing.

• With the yuan linked to the dollar, China’s monetary policy is linked to the U.S., meaning it remains super-loose and probably won’t move to neutral for many quarters. However, rising year over year CPI inflation and growing expectations for U.S. rate hikes likely raise China’s comfort level with explicit interest rate increases in the near to medium term.

For years, people have looked high and low for a hard landing in China without finding it.

the 2003 dollar weakness, and so on.

• The hard-landing hype has varied, including the weakness of its banking system, the inadequacies of its market systems, social risks, the risk of a yuan collapse during the 1997-1998 Asian devaluation crisis, the risk of a yuan revaluation during the 2003 dollar weakness, and so on.

• China’s stabilizing factors including the 1978 agricultural reform, the 1993 yuan stabilization, China’s

commitment to the WTO, and its numerous pro-growth market liberalizations in the 1990s and 2000s.

• Expect normal overshoots in some sectors in terms of demand and price, in the context of rising secular trends. However, these problems remain of the sector-by-sector variety, and do not constitute an economy-wide problem. In announcing China’s first quarter GDP, China’s National Bureau of Statistics noted that “irrational investments in redundant low-level construction projects in certain industries and selected areas have not been controlled effectively.”

Eco Speak . . . The U.S. index of leading economic indicators rose 0.3 percent in March, as expected. "Economic growth in the first quarter was strong and the second quarter may be as good or better," said Ken Goldstein, economist for the board. In March, six of the 10 leading indicators improved: vendor performance, money supply, jobless claims, building permits, orders for consumer goods and consumer expectations. Over the past six months, seven of the 10 indicators have improved. In March, the coincident index rose 0.2 percent, while the lagging index fell 0.1 percent. The leading index was flat in February.

Financials . . . Fannie Mae reported earnings of $2.03 per share, $0.12 better than the consensus of $1.91. "Given an additional quarter's perspective and our current assessment of the dynamics of the market, we have adjusted our expectations for several components of our core business earnings and our balance sheet but have not changed our outlook for growth in core business earnings per share in 2004 compared with the guidance we gave in January."

Metris cut to Neutral from Outperform at CSFB based on valuation.

Wachovia reported earnings of $0.98 per share, ex items, $0.08 better than the consensus of $0.90. Revenues rose 21.7% year/year to $5.68 billion versus the $5.53 billion consensus.

Barron's highlights Aon, which appears to finally be making a comeback. At around 28, they were trading at 12.8x this year's expected earnings. In contrast Marsh & McClennan, sports a multiple around 15, and the entire insurance-brokerage group's price-earnings ratio is near 14. Aon's CEO, Pat Ryan has said the company's goal is to boost its profit margin of about 15% to 20% next year, and that he considers this realistic. If that target were hit, it would bring Aon's margin up to the level of the industry leader, Marsh & McLennan, and other, smaller rivals, such as Arthur J. Gallagher and Brown & Brown. The company's prospects also have been aided by a successful effort to consolidate its computer systems and by changes in pay policies that provide incentives for key employees without overpaying them. One of the primary complaints about the co is that Mr. Ryan, a major Aon shareholder, has long been overcompensated, considering the results he has produced. For 2004, the consensus estimate puts earnings at $2.19 a share, compared with last year's $1.97, with 2005 earnings, on average, pegged at $2.45 a share. Encer Chen, an analyst of Pzena Investment Management, states: "We started buying the stock in the last half of last year at around 20 and continued buying until Pzena now holds 7.3 mln shares. We think the co historically was undermanaged, but now is doing a lot of things to improve profitability."

Oil & Gas . . . Prudential downgrades Anadarko Petro to Neutral-Weight from Overweight based on valuation, as the stock has exceeded their $54 target.

Refining margins rose in all regions except on the West Coast due to gasoline and distillate prices that were on average 6% and 7% higher, respectively. Higher product prices were partially offset by higher crude feedstock costs, which rose by an average $1.23/bbl or 3.5% nationwide. The increase in crude feedstock cost was least pronounced on the East Coast. East Coast refining margins rose most sharply -- up 43% to $9.34/bbl. Crude inventories have risen six of the last seven weeks and are now at 295 million barrels (excluding the SPR), their highest level since August 30, 2002, when the price of crude was $29.00/bbl. Inventories have risen by 21.6 million barrels in the last seven weeks, compared to an average 11.2 million barrel build during the same period in the last ten years. However, crude oil inventories remain 19 million barrels or 6%

below the ten year seasonal average level. Higher refined product prices are working their way to the wholesale level. The marketing margin on the Gulf Coast has climbed out of its negative position to an average 3.2 cents per gallon in the second quarter to date. The West Coast marketing margin jumped 112% to 14.0 cents per gallon.

Oil futures topped $38 an ounce for the first time in a month following news that Spain will soon withdraw its troops from Iraq. Spain announcement "adds to the deterioration of the confidence level that Iraq will be politically stable by the June 30 turnover date," said John Person, head financial analyst at Infinity Brokerage Services. May crude is at $38.10 per barrel, up 36 cents on the New York Mercantile Exchange. Futures prices, which climbed nearly 2 percent last week, haven't traded above $38 on an intraday basis since March 17. May unleaded gasoline is up 0.69 cent at $1.178 per gallon. At the pump, the average retail price for a gallon of unleaded gasoline is at $1.803, up from $1.798 a gallon on Friday and at a fresh record higher, according to AAA's daily fuel gauge report.

Transports . . . The average manufacturer discount on new vehicles sold in the U.S. fell from February to March, according to Edmunds.com. The decrease comes as auto sales firm up this spring. Edmunds.com said the average manufacturer incentive in March fell $80 from February to $2,379 but was up $144 from last year. Notably, U.S. automakers eased off on their aggressive marketing while foreign automakers ratcheted up their deals, the first time the auto research firm has recorded such a shift since it began sampling rebates and other deals in January 2002.

Morgan Stanley downgraded Frontier Airlines to Equal-Weight from Overweight based on concerns that rev trends in the company's top markets have disappointed over the past 4-6 weeks, as well as their belief that expectations are too high; firm cuts their FY05 EPS estimate to $0.40, which is well below consensus of $0.74.

Deutsche Bank upgrades Delphi to Hold from Sell based on valuation, as they believe that a lot of bad news is already factored into the stock. The firm maintains $10 target.

Defense & Aerospace . . . Barron's highlights Taser, which is slated to report earnings Tuesday. According to the article, the earnings report will be worth watching. The momentum "junkies" on the chat boards are insisting earnings will come in vastly higher than the 22-cent per-share estimate put forth by analysts. Anything less than great numbers Tuesday, and the sellers will take charge of the market for Taser, if only momentarily. What could possibly justify a share price of 28 times this year's sales, 16 times projected 2005 sales, 115 times 2004 forecast earnings and 72 times next year's profits? Perhaps the most salient question: Would anyone really want to live in a country where the market for miscreant-subduing weapons could possibly grow to justify such a mountainous capitalization? If the Taser cult were susceptible to the persuasive pull of reason, mathematics and common sense, the stock would never have approached its current three-digit status. Eventually, for unknowable reasons, the shares will fall earthward, short-sellers insist. And they're rooting for sooner, not later. At latest count, the shorts held about 40% of Taser's free-trading shares.

The WSJ reports that internal documents show that Northrop Grumman covered up major accounting irregularities during the late 1980s to stay in the Pentagon's good graces. The documents, which haven't been made public, form the heart of a U.S. government lawsuit against Northrop Grumman that could result in penalties of hundreds of millions of dollars. They suggest questionable behavior stretching through the end of the Cold War, when the company's B-2 Stealth bomber and electronic systems it built for military aircraft epitomized former U.S. President Ronald Reagan's massive defense buildup. The Justice Department's False Claims Act case has been pending for years, but a federal district-court judge in Chicago is about to unseal some files and a trial could start later this year. The lawsuit accuses Northrop Grumman's Rolling Meadows, Ill., facility of defrauding the government by overcharging for advanced radar-jamming devices and other protective equipment installed on some of the Pentagon's advanced jets, including F-15 fighters and B-1 bombers. Managers at what was then Northrop's Defense Systems Division in Rolling Meadows recognized the pervasive cost-accounting and material-tracking problems and sought to conceal them from Pentagon auditors, the documents show. A Feb. 21, 1986, memo distributed to 37 managers had explicit instructions on explaining accounting faults. "We can't tell the truth," it said.

Food & Beverage . . . Morgan Stanley believes that Coca-Cola’s board is potentially within 2 weeks of announcing the new Chairman & CEO, and industry sources leads them to believe that Gillette Chairman & CEO Jim Kilts is the leading candidate. The firm believes that this appointment would be viewed favorably by investors, and says KO shares could also be driven higher by strong 1st quarter results (firm is $0.02 ahead of consensus). The firm expects that the real positive news for KO could be global volume of growth of 5%+, which is ahead of the most bullish 4% forecasts.

Consumer Products . . . 3M reported earnings of $0.90 per share, $0.03 better than the consensus of $0.87. Revenues rose 14.4% year/year to $4.94 billion versus the $4.82 billion consensus. The company also guides, sees 2nd quarter EPS of $0.94-0.96, versus the consensus of $0.91, and raises 2004 guidance to $3.60-3.70 versus the consensus of $3.61 and prior guidance of $3.52-3.62.

Barron's highlights Colgate-Palmolive suggesting poor performance and the resulting decline in its stock price have created a potential opportunity for investors. If the co can get back on track and deliver an expected 11% gain in earnings in 2005, its shares could be sharply higher a year from now. "We view Colgate as a good-quality value name," says Owen Fitzpatrick, a managing director at Deutsche Bank Private Wealth Management, which began purchasing shares for clients in the low 50s late last year. U.S. toothpaste represents a slim 10% of Colgate's sales. Yet "90% of investors' attention" is on the U.S. market, says William Pecoriello, a Morgan Stanley research analyst, who has an Overweight rating and a $60 price target on the shares. Almost 75% of Colgate's toothpaste is sold overseas, where the co boasts a commanding market share and P&G's Crest is little seen or used. This year Colgate's earnings are expected to grow only 7%, well below the company's long-targeted double-digit goal. But many drags on profit growth will disappear in 2005. Sales comparisons for Colgate's Simply White tooth-whitening gel begin to grow easier in this year's 2nd half. The company's acquisition of Gaba Holding will boost margins in '05 after diluting earnings in '04. And Latin American operations could surprise to the upside both this year and next, as the currency devaluations and economic crises of recent years recede. "We think the earnings disappointments are behind them," says Mr. Fitzpatrick. Colgate trades for 21x expected '04 earnings of $2.62 a share and 19x next year's estimates of $2.92. Those P/E multiples are well below the 29 P/E the stock sported three years ago. "With earnings accelerating, the stock could trade at a 30% premium to the market," says Deutsche Bank's Fitzpatrick. It's now at a 12% premium.

Retail . . . A.G. Edwards is raising their rating on Dillard's to Buy from Hold and setting their price target at $23. Firm states that based on the theory that the pending sale of Marshall Field's to either May or Federated (firm sources over the weekend indicated that May or Federated could end up buying the chain and that FD does not have an edge, as earlier believed) could ultimately help serve to put a long-lagging DDS's chain "in play" as an acquisition target.

Wal-Mart Stores expects April same-store sales to come in at the low end of its 4-6 percent growth range. "With one less Easter week and tougher comparisons in the period, we are expecting to be at the low end of the range," the company said on its weekly recorded sales update. The strongest categories in the past week were electronics, food, office supplies, toys, pet supplies, lawn and garden and sporting goods. The East and Southeast were the strongest regions. Wal-Mart also opened 18 stores in the past week, 17 of which were Supercenters, one a discount store.

Restaurants . . . JP Morgan reiterates their Overweight rating on McDonald’s and would encourage investors to buy the stock on weakness following the death of CEO Jim Cantalupo; at the time of Cantalupo's appointment in early 2003, The firm believed he would remain CEO for 3-5 years with a likely transition of the job to COO Charlie Bell, who the Street views as heir apparent to the CEO role. While not confirmed, firm believes that Charlie Bell would make a logical choice for the CEO title given his broad background as President of Europe, President of Asia Pacific, Middle East, and Africa, and Managing Director of McDonald's Australia.

Healthcare . . . Wachovia upgrades Anthem to Outperform from Market Perform based on valuation. The firm says valuation appears attractive at 12x their 2005 EPS estimate, and they note that the Wellpoint deal is nearing completion and that business is off to a strong start in 2004. Valuation range is $102-$109.

Banc of America downgrades HCA to Neutral from Buy and cuts their target to $42 from $52, citing the company's recent preannouncement. Also, firm says they are unprepared to call a peak in HCA's bad debt expense. Firm also downgrades Triad to Neutral from Buy and cuts their target to $32 from $40 to reflect their concern that bad debt is unlikely to decline in 2004 given industry trends.

Medical Devices . . . Deutsche Bank says they would buy Medtronic on weakness related to Friday's announcement that the co is recalling a subset of two ICD models that utilize a defective capacitor (that is no longer being employed). The firm is not overly concerned with the recall given that it does not affect MDT's current and future product offerings, and should not have a material financial impact on the company; maintains Buy rating and $57 target. Separately, firm also reiterates their Buy rating on BSX ahead of tomorrow's 1st quarter results, as they believe there could be upside to forecasts due to strength in Taxus, potentially stronger than expected gross margins, and favorable forex.

Drugs . . . Barron's discusses sleeping problems treatments that begin with sleep position training, weight loss, exercise, quitting smoking and avoiding alcohol. While drug company's are exploring remedies, the most immediate advances are likely to come from improvements to continuous air machines. The market for those devices is dominated by two co's, ResMed and Respironics. At current prices, both stocks sell at multiples below that of the medical-appliances industry generally. Another not-uncommon sleeping problem, afflicting perhaps as many as 250,000 people in the U.S., is narcolepsy, which essentially is a kind of specialized reaction from not having had enough sleep. The leading treatment here is Cephalon's Provigil, whose sales surged 40% last year. Even so the stock, at about $57, is well below its 52-w high and could be worth a look. In partnership with heavyweight Pfizer, Neurocrine Biosciences is now in late Phase III trials of Indiplon, another potential sleeping pill that has few "morning after" effects and apparently puts users to sleep, and keeps them asleep, quickly.

Eli Lilly reported earnings of $0.70 per share, excluding acquired in-process R&D charges related to AME acquisition, $0.04 better than the consensus of $0.66. Revenues rose 16.9% year/year to $3.38 billion versus the $3.23 billion consensus. The company also guides, sees 2nd quarter EPS of $0.67-0.69, versus the consensus of $0.68, and 2004 EPS of $2.80-2.85 (ex items), versus the consensus of $2.83.

Barron's discussed the drug sector and suggests some of its patents will soon expire on some blockbuster drugs, and there isn't enough in the industry's own development pipeline to fill the breach. According to the article, Big Pharma is on the lookout for any little firm with a good-looking molecule. The runup has left biotech stocks quite pricey, biotechs with earnings now go for 40x the next 12 months' earnings. In picking possible beneficiaries, Morgan Stanley biotech analyst Steve Harr likes to focus on firms with new treatments for the toughest medical problems, like cancer. Among those firms are OSI Pharmaceuticals, Millennium Pharmaceuticals and Onyx Pharmaceuticals. Mr Harr sees partnerships as clear opportunities for certain company's, including Eyetech Pharmaceuticals and Angiogenics. One hedge-fund pro, who doesn't want to be named, has become intrigued by SuperGen. The firm has done a poor job of testing its drug for a kind of bone cancer. Its stock has slid from about 13 to 8 this year, leaving firm with a $300 million stock market value. But clinical trials hint that SuperGen's drug could yet prove effective, in more capable hands, says the investor. Another interesting little biotech is Keryx Biopharmaceuticals. The company is conducting Phase III trials of a product that prevents kidney damage in patients with diabetes. Shares in the development stage co have risen tripled this year, to 16.

The WSJ's "Ahead of the Tape" column highlights Eli Lilly, which reported earnings this morning. According to the article, drug investors fixate on the pipeline, often to the exclusion of focusing on today's profits. This tends to lead them to overvalue company's that have plenty of late-stage products to highlight at analysts meetings and to undervalue company's that are overflowing with cash but seem to have bare cupboards. Such appears to be the case with Eli Lilly. The most eagerly awaited is antidepressant Cymbalta, which could be approved sometime this summer. Investors haven't yet started to worry that a controversy about currently marketed antidepressants and suicidal tendencies could mean delays for Cymbalta.

Biotech . . . Banc of America initiates coverage on ImClone Systems with a Buy rating and $91 target. The firm says IMCL receives nearly unprecedented economics on U.S. sales of Erbitux through partner BMY (IMCL gets a 39% royalty of net sales, and a 10% mark-up above drug manufacturing costs), and believes that favorable economics and no cost of goods expense for the first billion in Erbitux sales could drive long-term earnings power of $3/share or more.

Hotel & Leisure . . . Century Casinos target raised to $7 at Merriman Curhan.

Media . . . Ask Jeeves upped to Outperform at Piper Jaffray. Price target $45.

Ask Jeeves upped to Outperform from Peer Perform at TWP. The upgrade is based on recent improvements made to the company's technology and user interface that should help Ask Jeeves increase the penetration of its existing user base and add new users, a stepped up focus on Ask Jeeves' presence in the UK including a new ad campaign and a better understanding of the growth and contribution that the ISH properties should add both economically and strategically.

Piper Jaffray upgrades Ask Jeeves to Outperform from Market Perform as the company: 1) has gained a strong negotiating position vis-a-vis paid search providers, 2) the acquisition of ISH is likely to introduce a number of new initiatives, and 3) the company has strong momentum in traffic and 2005 estimates are very likely to increase. The firm also raises its target to $45 from $40 on 28x 2005E EBITDA. The firm would be buyers of the stock ahead of the 1st quarter earnings release tomorrow as the firm believes there will be additional upside to the company's March 4 pre-release.

EchoStar estimates raised at Schwab SoundView. The firm is raising 1st quarter net adds to 300K from 280K (consensus 290K) due to company's record TV marketing in 1st quarter. According to the firm, TV marketing has historically been directionally indicative of overall marketing spend by both DISH and DTV. Also, the aggressiveness of DISH's campaign likely indicates that the inventory problems that plagued 3rd quarter and 4th quarter largely are behind the company. With the shares trading 17x 2005 fully taxed FCF, the firm is maintaining their Outperform rating and $43 target.

Emmis Broadcasting CEO Jeff Smulyan, in an interview with Broadcasting & Cable

magazine, said he would unveil a plan at this week's National Association of Broadcasters convention in Las Vegas that would provide a digital TV model in which local broadcasters would "broadcast" the 15-40 most significant cable channels at a $25 per sub. Emmis' digital plan

addresses a few broadcasting realities. First, the question of how the broadcasters will earn a return on the industry's $4 billion commitment to digital TV has never been answered. This is an alternative and is currently being attempted in Salt Lake City by USDTV. In addition, Emmis' plan would address another vexing problem facing local TV broadcasters; how to create a more stable, consistent revenue stream to provide balance to advertising, broadcasting's sole revenue stream. This would add a subscription service for local broadcasters. In the article, it was clear that technological concerns (quality of broadcast signal, set-top boxes) and industry cooperation all lay ahead for the business.

Network Equipment . . . Prudential downgrades Nokia to Underweight from Overweight based on intensifying competition and a lack of visibility in the company's core mobile handset business. There have been recent product missteps, increased competition, and increased branding competition from wireless carriers. The firm reduces its 2004 rev estimate to $28.7 billion from $31.7 billion and lowers its 2004 EPS estimate to $0.64 from $0.84. UBS downgrades Nokia to Neutral from Buy. Despite the stock likely being close to the bottom of its trading range, there is insufficient visibility to the success of anticipated product launches and the duration of margin compression in the interim. While the co has been in this position before, the recovery this time could prove more difficult. JP Morgan downgrades to Neutral from Overweight; firm believes that Nokia is not simply losing share to Samsung at the high end but is also under pressure across its range from Sony Ericsson, Siemens and Motorola. The firm lowers its Mobile Phones unit operating margins estimate to 20% in 2nd quarter from 25% in 1st quarter. The firm reduces its 2004 EPS estimate by 13%.

Digitimes reports that Corning, the world's largest T.F.T. L.C.D. glass substrate provider, suffered a loss of millions of NT dollars due to voltage drops at the Tainan Science Park last Friday, according to sources. According to the article, the voltage drops caused malfunctions at Corning's glass furnace, and may exacerbate the already tight supply of glass substrates. This is the third incidence of power surges and voltage drops at TSP since the beginning of April. In this case, six company's, including Coretronic, Helix Technology, E-One Energy Technology and West Electric, lost a total of nearly NT$10 million. Some of the company's said they are not ruling out asking for compensation from Taiwan Power.

Boxmakers . . . Lexmark reported earnings of $0.91 per share, $0.03 better than the consensus of $0.88. Revenues rose 13.4% year/year to $1.26 billion versus the $1.22 billion consensus. The company sees 2nd quarter EPS of $0.88-0.98 versus the consensus of $0.90.

Semiconductors . . . Schwab SoundView upgrades Skyworks to Outperform from Neutral and raises their target to $14 from $12. The firm is citing stronger than expected CDMA growth from Samsung, as well as the stock's recent pullback; also, firm expects that transceiver wins at Samsung will be a positive catalyst, and note that SWKS has no exposure to Nokia GSM or TDMA, and only about 10% exposure to NOK overall.

Agere Systems has adopted Virage Logic's Self-Test and Repair Memory System. Agere is using the system to implement an embedded memory test and repair architecture for its second-generation multi-service traffic management network processor, the APP550.

Deutsche Bank upgrades Advanced Micro to Buy from Hold. The firm says a common response to AMD's strong 1st quarter was "things can't get better", yet they believe that it can get better (in the near-term at least); while the market appears to be focused on cycle risk at the moment, firm says AMD is currently benefiting from a strong product cycle (AMD64) and improved leverage. Also, firm says the stock trades at a discount to peers. Target is $20.

Samsung as expected reported record revenue and net profit in 1st quarter 2004. The outlook for the remainder of 2004 is solid, as market share gains and high spending levels should lead to strong volume growth, and as pricing trends in its major product groups remain favorable. Expect earnings to double this year. In 2nd quarter, expect Samsung to defy seasonality and see further revenue growth sequentially. With a 29% Quarter over Quarter increase in handset shipments in 1st quarter to 20.1m units, Samsung clearly gained market share as the industry declined 9% Quarter over Quarter, and expect its competitive position to remain strong in the next few quarters given its strong product pipeline. Estimate handset shipments to increase 56% Year over Year to 87 million in 2004. Samsung's ASP and margins also continue to be among the highest in the industry. Samsung's NAND prices are holding up well in 2nd quarter 2004. ASP is expected to be flat to slightly down in 2nd quarter as the company does not see the need for a signficant price cut given the strong demand. In DRAMs, Samsung's 2nd quarter bit growth guidance of 15% supports our expectation of a softer price environment in 2nd quarter, as analysts anticipate increased supply growth to meet incrementally weaker demand in the quarter. The outlook for TFT-LCDs continues to look incrementally better. Samsung now expects a slight oversupply only

at the end of this year, versus its prior expectation of oversupply in 2nd half 2004. Although a sizeable supply increase in the industry is slated for 2nd half 2004 from 5G ramps in Taiwan, the actual ramps could fall short of planned levels due to continued tightness of components such as color filters.

Software . . . Synopsys terminates merger agreement with Monolithic. SNPS paid MOSY a $10 million termination fee. In addition, MOSY announced separately that it has authorized a $25 million buyback plan.

Microsoft and Sonic Solutions unveiled DVD Producer - WMV HD Edition, a special version of Sonic's professional authoring application that supports the production of DVD titles using Microsoft Windows Media Video High-Definition (WMV HD).

JMP Securities initiates coverage of Red Hat with an Outperform rating and $30 target; firm believes the stock's rich valuation is justified by strong fundamentals and explosive growth in the disruptive technology Linux market. The firm also believes that a number of factors could drive rev and earnings growth, including: 1) growth of Linux into enterprises' data center environments, 2) increasing OEM revs from Dell, H-P, and IBM, 3) int'l opportunities, and 4) new functionalities such as systems and storage mgmt (Sistina) and enhanced security features.

Barron's discusses the booming videogame business, which three weeks from now will descend on Los Angeles for E3, the industry's biggest annual trade show. Basically, there is lots of bullish news coming from an industry in which share prices have jumped 50% to 100% since early 2003. But some smart investors have been taking profits, preparing for what they see as more difficult days ahead as the industry looks toward the next generation of console games, coming in 2005 and 2006. Lately, business conditions have been excellent, notes Mike Wallace, an analyst at UBS. He notes that both Activision and THQ pre-announced better-than-expected 1st quarter profit, and that Microsoft's recent move to cut the Xbox's retail price is drawing new buyers. "Near-term, I'd still own them," Wallace says of the stocks. "Things look good, with the hardware price cuts, and big games coming. But my concern is that six months from now, in the fall, people will start looking into next year." In 2005, Wallace predicts, U.S. videogame sales will be flat-to-down. Hardware sales, he says, are likely to be down as well. The next big growth year for the industry, he says, will be 2007. The logic is clear: The current generation of game consoles is aging. The Xbox 2 is expected in stores by Christmas 2005, which means no significant software titles for it much before 2006. Wallace thinks Microsoft might provide details about the next Xbox at E3. But it could do otherwise, particularly if the new platform isn't backward-compatible with the current one. Meanwhile, the next-generation Playstation, the PS/3, isn't due until 2006. He says that anyone who still owns any of the stocks this fall should start worrying about the impact of expectations for flat sales in 2005.

JP Morgan adds Oracle to its Focus List, as they expect the company to report strong 4th quarter results. The firm believes that the database cycle is stronger than expected, and that ORCL's database options continue to gain momentum, providing further room for outperformance. Firm says ORCL is displaying a clear acceleration in rev and EPS growth, and says near-term catalysts include: 1) several upcoming investor conferences, 2) the naming of a CFO likely in May, 3) strong May quarter results, and 4) the resolution of the PSFT overture. Target is $15.

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