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2Q IN REVIEW: No names take control as Net stocks fade

In a sign of just how tough it was for Internet stocks in the second quarter, no-name technology companies took center stage as ZDII's quarterly winners. The second quarter winners and losers tally was dramatically different from the first quarter, when Internet stocks dominated the leader board.

Top gainer Meridian Data, Inc. (Nasdaq: MDCD), a network storage maker, never received analyst coverage and was a Wall Street unknown. But it came from nowhere to jump 296 percent in the quarter.

Meridian shares were quiet until early May when its new high-end Snap! servers took off. Shortly afterwards, disk drive maker Quantum Corp. (Nasdaq: QNTM) said it would acquire the Scotts Valley, California-based company. That's when shares of Meridian Data really soared, approaching their 52-week high of 9 1/16 from a low of 15/16 last November.

2Q Winners
Ticker 3/31/99 6/30/99 Net Change
MCLD 2.19 8.75 6.56 296%
EMLX 33 111.19 78.19 179%
MCOM 6.44 20 13.56 174%
MI 13.5 35.9 22.4 165%
NSM 9.31 25.31 16 163%
LTXX 4.81 13.31 8.5 151.95%
BMC 4.44 10.31 5.88 141%
ADAM 5.5 14.50 9 133%
EDFY 5.44 13.38 7.94 118%
QCOM 62.19 143.5 81.31 116%
Prices as of 6/30. Source: Nordby International.
Top Losers
Ticker 3/31/99 6/30/99 Net Change
NETG 41.38 22.75 18.63 -54.7%
MCK 66 32.19 -33.8 -53%
NETA 30.69 14.69 -16 -52%
CDN 22.75 12.63 -13.13 -49%
USWB 41.25 22.19 -19.06 -46%
ONSL 33.56 18.9 -14.63 -45%
CMCSA 61.5 35.8 -25.7 -42%
CKFR 42.56 27.56 -15 -40%
EGGS 18.19 11.19 -7 -39.5%
SEEK 74 47.94 -26.06 -39%

Silver medallist Emulex's (Nasdaq:EMLX) success is based on innovation in a niche market. Emulex jumped 179 percent in the quarter.

"They're riding the wave of rapid fibre channel technology adoption," says Needham and Co., Inc. analyst Glenn Hanus. He expects Emulex to meet or exceed Street expectations over the next six months. There is little competition in making fibre channel, which is regarded as the next standard for high-speed connections between networked computers and their peripherals. Emulex beat Street estimates in the first quarter by two cents with earnings of 20 cents a share. Second quarter predictions are for 29 cents a share. This isn't the first time Emulex has been a quarterly winner.

Metricom Inc. (Nasdaq:MCOM) is another one of those "next-generation" high speed innovators. Metricom shares owe much of their runup having friends in high places.

MCI WorldCom (Nasdaq:WCOM) and Vulcan Ventures, a venture capital fund manned by Microsoft co-founder Paul Allen, gave Metricom a big cash infusion . They both invested $600 million in the company through the purchase of 60 million shares priced at $10 per share. The agreement gives Vulcan Ventures 49 percent ownership and MCI WorldCom 38 percent. Those who were shareholders as of June 7 own the remaining 13 percent. Metricom is touted for its cutting-edge Ricochet service, which provides fast wireless access to e-mail and the Internet. Though Metricom's losses reached $15 million in the first quarter of 1999, it could rise out of the red with sugar daddies now ready to finance its big dreams.

Other notable winners were National Semiconductor (NYSE: NSM) which leapt in early May after it said it would disposeof its microprocessor business. Shares jumped again on news that National Semi officially sold Cyrix to Via Technologies.

"There's no question it was a good idea to get out of the low-end chip market where AMD and especially Intel were killing them," said Dan Scovel, an analyst at Fahnestock & Co. "Whether they can excel making chips for a pretty immature market remains to be seen. Most of the technology they're talking about hasn't even made it to market yet." Inc, (Nasdaq: ADAM), formerly known as A.D.A.M. Software, provides Internet based health information to consumers and professionals. It got a spark from the online medical buzz this May.

Last in line for accolades is Qualcomm Inc. (Nasdaq: QCOM) soared on blowout earnings results. In March, shares took off after the maker of wireless chips and handsets settled a dispute with rival Ericsson (Nasdaq:ERICY) which left it with the key CDMA or Code Division Multiple Access - patents. Assuming CDMA is the standard for "third generation" wireless chips, Qualcomm Inc. shares could continue to climb.

Among the losers were online advertiser NetGravity Inc.(Nasdaq:NETG), which may be underestimated relative to first mover DoubleClick Inc.'s (Nasdaq: DLCK) success. Of five analysts covering the stock, one rates it a "strong buy," two say "accumulate, "and another two say "buy."

Other losers included two online computer retailers. Software retailer Egghead (Nasdaq: EGGS) sank 40 percent while Onsale (Nasdaq: ONSL), which reinvented itself but reported shaky earnings, lost 45 percent. They are not alone in online retailers under the gun. According to First Call, Onsale is expected to lose by 59 cents a share this quarter.