Based on announcements made at its annual financial analyst meeting, where it highlighted its strategy to leverage its digital signal processing (DSP), analog, developer tool, and manufacturing strengths to engage the wireless, broadband access, and emerging applications markets, we are upgrading our rating on Texas Instruments from Attractive to Buy. The company is well positioned in the wireless market with product leadership in DSP and a large installed base of DSP software programmers, which will allow it to continue to be a dominant player as the wireless industry converges toward third-generation wireless products. In addition, the company outlined its broadband strategy for DSL, cable modem, and voice-over IP (VoIP). Texas Instruments has made great improvements to its DSL product offerings and we believe that it will become a major player in the DSL market. The company plans to ship 300,000 asynchronous digital subscriber line modem ports by the end of the quarter and 1 million ports through June. Based on continued strong demand for the company's products, fast-growing end markets, and the company's smooth execution, we are raising our earnings-per-share estimates for Texas Instruments to $2.45 for 2000 and $3.35 for 2001 and raising our target price to $200.

Eric BlachnoPennsylvania Merchant Group610/260-64283ComDowngraded to Hold.

Because its non-Palm [See Herring 100 profile] business performed below expectations after it announced a spin-off of the subsidiary, we find it difficult to continue recommending 3Com shares; we're lowering our rating from Long Term Buy to Hold. With pre-Palm IPO euphoria behind us, investors may focus more on 3Com's core business, which has recently faced significant growth challenges and may need some time to solve problems. Systems (49 percent of non-Palm revenues) were down 12 percent sequentially and 12 percent year-over-year in the last quarter (second quarter 2000), generally the strongest of the year. The company pointed to issues of internal product development execution and enterprise customer-order slowdown related to Y2K. Personal connectivity products such as modems and adapter cards (51 percent of non-Palm revenues) were up 15 percent sequentially but down 14 percent year-over-year. The likely volatility in Palm's stock and uncertainty as to the timing and terms of the distribution of 3Com's stake in Palm (94.8 percent) to 3Com shareholders appear to have resulted in 3Com's stock trading at a 5 percent-plus discount to the implied sum-of-parts value. We think that until we get closer to the distribution date, the discount could remain substantial. Essentially, until the dust settles and rationality returns, we have chosen to step back and downgrade our rating from Long Term Buy to Hold.

John PowersRobertson Stephens415/693-3314Verisign [See Herring 100 profile]Maintaining Buy.

VeriSign announced it intends to acquire Network Solutions, the exclusive registrar of Internet domain names, for approximately $17 billion based on the closing price of VeriSign on March 7. We believe this is a significant strategic move. In the last few quarters, VeriSign has moved from being a network security infrastructure play to a general platform for Internet trust services. Now this platform includes establishing an Internet identity, creating the ability to be an e-commerce platform, and ultimately, with the $1.4 billion acquisition of Signio in February, to create a payment infrastructure platform. The acquisition of Network Solutions also results in a strong financial combination. Revenues for the combined company are expected to be about $108 million in first quarter 2000, $519 million for calendar 2000, and $794 million for calendar 2001. More interestingly, the combined company had $287 million in deferred revenues and about $479 million in cash as of December 31. VeriSign will issue 2.15 shares of common stock for each share of Network Solutions prior to the 2-for-1 split of Network Solutions stock on March 10. VeriSign will write off $17 billion of goodwill over the next three to five years. The acquisition is expected to close in third quarter 2000. We continue to recommend VeriSign with a Buy rating.

Edited by Tom Geck.