Tech Stocks Dive on Sales Forecast
Computer-related stocks plunged Tuesday amid warnings of disappointing sales at several high-profile companies--raising concerns about fourth-quarter corporate earnings.
The sell-off in technology shares pushed the Nasdaq composite index down 24.35 points, or 1.5%, to 1,606.37, even though the Dow Jones industrials eked out a 5.72-point gain to 8,018.83.
The tech sector’s woes began with computer networker Cabletron Systems’ announcement that weaker-than-expected domestic sales in the quarter ended Sunday will leave earnings far below estimates. The news sent Cabletron’s stock down $7.50 to $15.69 a share, a 32.3% decline.
But Cabletron’s woes were eclipsed by other warnings as the day wore on--most of which made reference to concerns that orders for high-tech equipment aren’t meeting expectations. Most of the companies involved didn’t directly mention the Asian economic crisis, but that is a growing worry.
“There’s more to follow out of Asia,” warned Mike Driscoll, senior block trader at Hambrecht & Quist Group in New York.
The bad news on Tuesday:
* Shares of specialty semiconductor maker Altera Corp. tumbled $10.94 to $40.75 after the company said its sales slowed sharply last month as computer makers and telecommunications companies postponed orders.
Some analysts said the postponements were more reflective of a desire to trim inventories than a response to weaker final demand from the companies’ customers.
Computer makers “are getting more aggressive at reducing their inventory costs at the end of the quarter,” said Scott Randall, analyst at SoundView Financial.
Still, analysts noted that Altera gets 20% of its sales from Japan, where economic growth has ground to a halt.
* Merrill Lynch semiconductor analyst Thomas Kurlak, a widely followed voice on Wall Street, cut earnings estimates for some well-known firms, saying the chip industry’s sales growth is slowing.
Kurlak cut his 1998 earnings estimate for Texas Instruments, for example, to a range of $2 to $2.50 a share, down from $3. He trimmed VLSI Technology’s 1998 estimate to a range of $1.10 to $1.20, versus $1.20 to $1.30.
Texas Instruments’ shares dove $5.31 to $46.50; VLSI’s shares sank $3.13 to $19.81.
* Disk drive maker Western Digital’s stock dropped $1.75 to $19.38 after the company said that because of intense competition, it will cut production of PC hard drives. The company said it expects to just break even in its fiscal second quarter.
Component makers such as Western Digital appear to be bearing the brunt of a rush by PC makers to sell less expensive products. Compaq Computer, the world’s largest PC maker, is selling more and more of its sub-$1,000 PCs, as are its competitors.
* After the market closed, another computer networker--3Com Corp.--warned that sales and earnings in its quarter ended Sunday will be well below estimates because the company cut shipments of its computer networking products to distributors to try to reduce swollen inventories.
3Com, which said it will earn just a “slight” profit in the quarter--versus Wall Street’s average estimate of 46 cents a share--said inventory of its modems and other networking equipment is building at distributors in part because the financial crisis in Asia is slowing economic growth in the region and hurting high-tech sales there.
In the broad market, Nasdaq losers outnumbered winners 26 to 17, as tech stocks sank.
But blue chips weren’t shaken by the tech sector’s problems. Some big-name stocks, such as Coca-Cola, may even have gained from the decline in tech issues, as investors sought out “safe haven” stocks.
Coke’s shares climbed $1.31 to $65.88, helped by an “accumulate” recommendation from Merrill Lynch.
Among Tuesday’s highlights:
* Other tech losers included Xilinx, down $6.50 to $33.94; Lattice Semiconductor, down $5 to $54; Compaq, off $2.13 to $63.88; Microsoft, down $1.56 to $142.25; and IBM, down $1.81 to $110.75.
* Blue chip winners included such industrial names as Alcoa, up $1.06 to $68.13; Caterpillar, up $1.75 to $50.94; and Deere, up $2.25 to $59.
* Some retail shares advanced on continuing optimism about holiday sales. Tandy rose $1.63 to $45.63, TJX gained $1.25 to $36.25 and Dayton Hudson was up $1.19 to $72.75.
* Many financial stocks also gained. BancOne was up $1.94 to $54.56, Sumitomo Bank climbed $4.75 to $45.25, Washington Mutual gained $1.06 to $70.75 and SunAmerica jumped $1.81 to $43.81.
In the bond market, yields closed mostly unchanged, with the 30-year Treasury bond ending at 6.03%, same as Monday.
The dollar eased slightly after hitting five-year highs against the Japanese yen on Monday.
In foreign trading Hong Kong shares rallied powerfully as local interest rates declined. The Hang Seng index jumped 4.3% to 11,216.
But smaller Asian markets were weak, as currencies such as the Thai baht and Indonesian rupiah continued to sink in value versus the dollar, despite the international financial bailouts underway for those troubled economies.
* PRODUCT CHANGE: Western Digital will stop making disk drives for laptops. D2
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Tumbling Tech
Tumbling Techsome key technology stocks were hammered on Tuesday, amid a flurry of bad news:
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Stock Tues. close and change Percentage change Cabletron Systems $15.69,--$7.50 -32.3% Altera 40.75,--10.94 -21.2 Digital Link 19.38,--3.94 -16.9 VLSI Technology 19.81,--3.13 -13.6 Texas Instruments 40.75,--10.94 -10.2 3Com 35.31,--3.06 -8.0 Ascend Communications 23.75,--1.81 -7.1 National Semiconductor 32.31,--2.44 -7.0 Nokia 77.44,--5.00 -6.1 Intel 78.06,--3.44 -4.2
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