Breakfast With The Fool: Buffett's Berkshire Bags Better Q3 ,
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            B R E A K F A S T   W I T H   T H E   F O O L
                      Monday, November 13, 2000

benjamin.rogers@enron.com
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"They seek to change others because they cannot change
themselves." -- Scott Turow


BUFFETT'S BERKSHIRE BAGS BETTER Q3
Holding company Berkshire Hathaway bests last year and moves
farther into household names.

By Tom Jacobs

Holding company Berkshire Hathaway (NYSE: BRK.A) announced Q3
earnings Friday of $523 per Class A share, 90% over last year's
$276. While earnings from operations jumped from last year's
$103 to $197, Berkshire also reaped substantial investment
gains. Class A shares closed Friday unchanged at $62,200, while
the Class B shares (non-voting shares worth 1/30th of each Class
A) for the commoners finished up $11 at $2043.

Warren Buffett and Charles Munger steer Berkshire, whose wholly
owned businesses include insurance, aviation, newspaper, candy,
shoe, jewelry, and home furnishing companies. Berkshire also
maintains large stock holdings in energy and name-brand U.S.
stocks, such as Gillette (NYSE: G) and Coca-Cola (NYSE: KO).
Because of Berkshire's holdings and insurance business, not many
analysts follow the company -- The Motley Fool has one -- and
the quarterly numbers are not as simple as they seem. For one
thing, Berkshire's numbers vary considerably quarter-to-quarter,
and much of the insurance business action occurs in the fourth
quarter.
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A big factor for an insurance business is float -- money paid in
premiums that the insurer invests in hopes of a greater gain
against future payout for claims. Berkshire's float increased by
a healthy $1.3 billion in Q3. But underwriting losses at its
General Re unit -- which have plagued Berkshire in the last
several years --continued, with another $135 million loss on a
contract there. However, Buffett believes that the loss will
mean future investment benefits, stating, "From time to time we
will have such transactions in the future and we will post you
of their effects upon our current earnings. When priced
properly, this pain-today, gain-tomorrow business is welcomed by
us and benefits our shareholders." I'm one of those, and you
gotta love words like that from a CEO.

Buffett observed that advertising spent for Berkshire's GEICO
insurance unit has not realized more than a nominal gain in
policyholders. GEICO plans to cut back advertising for now, and
Buffett believes that increased rates will lead to some
improvement in profitability next year.

The quarter saw more Berkshire moves into home furnishings, with
proposed purchases of Shaw Industries (NYSE: SHX) and Benjamin
Moore Paint. Berkshire shareholders tend to be rabid about their
company and are already debating the numbers.
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NEWS TO GO

Fresh pork and processed meat producer and marketer Smithfield
Foods (NYSE: SFD) offered to acquire all outstanding stock of
No. 1 U.S. beef producer IBP (NYSE: IBP). The other white meat
maker would pay $4.1 billion in stock and assumed debt for
what's for dinner. This means Smithfield pays $25 per IBP share,
20% above IBP's Friday close of $20.88.

The Internet Corporation for Assigned Names and Numbers meets
this week in Marina del Rey, California, with its 800 members
leading up to adding as many as 14 new domain names to join
existing Internet suffixes .org, .com, .net, .edu, and .gov. New
names would mean competition for VeriSign (Nasdaq: VRSN) ) whose
Network Solutions purchase gave it control over the database for
.com, .org, and .net. -- with full pricing and registration
power. ICANN received 44 complete applications at $50,000 a
crack. Some names reported include .web, .biz, .ecom, and .info
for general topics; .nom, .per, and .i for personal home pages;
and .health, .museum, and .union for specific content. (And
.tom9 for -- just kidding!) ICANN has taken some heat for
rejecting .kids and .xxx for porn sites, but ICANN staff held
firm, saying that defining kids' sites would be problematic, and
that porn sites couldn't be forced to take an .xxx suffix. The
board's 19 members will act Thursday and it's reported that the
new domains will be operational in Q2 2001.

Netpliance (Nasdaq: NPLI) announced Sunday it would cut 38% of
its workforce and refocus its business away from its
poor-selling I-Opener Internet appliance, which combined the
device with Internet access and Netpliance's consumer portal.
Netpliance reported Friday a $41.9 million loss, or $0.69 per
share, versus a loss of $6.5 million, or $0.20 per share, a year
ago. The company intends to reorganize into two business units:
Netpliance.net, offering next-generation services and hosted
applications to broadband service providers, and Netpliance IPG,
which will develop core infrastructure products to be installed
in data centers, points-of-presence, and residential access
devices. Though the company had $76.6 million in cash at the end
of the September quarter, it's hard to see how it can expect to
make headway in this area already filled with cash-rich competitors.

A federal court in Delaware has ruled against GeneChip DNA array
maker Affymetrix (Nasdaq: AFFX) in favor of the U.K.'s Oxford
Gene Technology in a patent infringement case involving
technology fundamental to Affymetrix's product technology. Two
weeks ago a British appeals court ruled in favor of Affymetrix
that it had a license when it purchased part of Beckman Coulter
(NYSE: BEC) in 1999. According to reports, the U.S. court agreed
with the British court on the Beckman Coulter-Affymetrix license
transfer, so the sole issue is a 17-month period when Affymetrix
paid no royalties to Oxford. Oxford sought $40 million -- which
will not be tripled because the court reportedly found that
Affymetrix did not willfully or knowingly infringe the patents.
Affymetrix expects about $190 million in revenues from its
GeneChip arrays and related equipment this year. CEO Stephen
Fodor stated that "We don't think [the decision] will have a
long-term effect. Our future is secure. So we're now talking
about the past -- of about 17 months at the most and no trebling
of damages.''

Reuters reports that chip giant Intel (Nasdaq: INTC) will
announce two new Celeron processors chips, running at 733
megahertz and 766 megahertz, to further its hold on the
sub-$1,000 PC market in the face of stiffening competition from
Advanced Micro Devices (NYSE: AMD). AMD currently has the
speediest chip on the market and is said to be undercutting
Intel on price by 25%. The 766 will cost $170 per thousand and
the 733 will cost $112 per thousand, giving you a pretty good
idea of where the prices are in a low-cost PC box. Intel said
that Compaq (NYSE: CPQ) and Hewlett-Packard (NYSE: HWP) will
introduce systems using the chips.
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