Shadow of Anxiety Cast Over Tech Issues
Many technology stocks have come roaring back over the last two days from their recent plunge, but some analysts remain worried about the near-term trend in the sector.
Several factors, including growing fears about corporate spending on the year 2000 bug and ongoing concerns about personal computer sales, could weigh on major tech stocks in the next couple of months.
“This is a bounce that’s not necessarily going to carry the techs to new heights,” said Rao Chalasani, strategist with Everen Securities in Chicago.
The tech-heavy Nasdaq composite index plummeted 5.6% on Monday, leaving it down almost 9.7% from its April 12 record high.
But the index resurged 2.7% on Tuesday and 3.3% on Wednesday.
One glaring exception to Wednesday’s rally: Microsoft, which fell $1.13 to $82.
Late Tuesday, Microsoft reported that fiscal third-quarter earnings beat Wall Street estimates. However, the software behemoth cautioned that 1999 sales may suffer if large firms delay major software upgrades because they’re focused on Y2K computer fixes.
Prudential Securities on Wednesday downgraded Microsoft to “hold” from “accumulate.”
Several other tech giants, including Sun Microsystems, have recently warned that sales could be hampered if businesses spending for Y2K put off other tech-related purchases until next year.
Sun rallied $5.13 to $59.50 on Wednesday but remains off 18% from its April 8 peak.
Not everyone buys the argument that the tech sector is in for problems because of changed spending habits tied to Y2K. Some tech companies with poor earnings have blamed Y2K. Others have complained about Y2K to intentionally hold down analysts’ earnings estimates, thereby making it easier to beat them later, some experts contend.
“Let’s face it, Y2K is the excuse du jour. It’s the excuse that requires no follow-up explanation,” said Roger McNamee, general partner at Integral Capital Partners, a technology investment firm in Silicon Valley.
Jeff Beard, a growth-stock manager at institutional money management firm TradeStreet Investment Associates in Charlotte, N.C., agrees: “It’s being overhyped. There will be some crowding-out of investment, but at the end of the day this will be temporal.”
Even if leading tech stocks stall after their surge of the last six months, the industry’s fundamentals remain intact, McNamee says.
“One thing everybody is scratching their heads about is what happened Thursday, Friday and Monday,” he said, referring to the stocks’ tumble. “There really hasn’t been any news.”
Indeed, IBM provided a bullish assessment after the close Wednesday when it reported strong first-quarter earnings.
Chief Executive Louis Gerstner noted that IBM “saw a significant improvement in our business in Asia,” as did Microsoft. That raises hopes that a turnaround in Asia might offset any future Y2K-related weakness in tech sales.
Some analysts, however, say many major personal computer companies and chip makers could remain weak for much of this year amid deep fears about slowing PC demand. Dave Barnard, a tech fund manager at AIM mutual funds in Houston, recently sold his entire stake in Dell Computer after holding it for five years.
Many hardware companies “are really having a tough time,” said Don Hays, strategist at Wheat First Union in Richmond, Va.
Dell shares, up 25 cents to $38.44 on Wednesday, still are off 30% from their recent peak.
Optimists argue that tech stocks will come on strong in the second half of ’99. By then, Y2K worries will have faded as investors focus on next year’s sales and profit prospects.
If businesses delay capital spending, “that sets a lot of pent-up demand for the beginning of next year,” said Barnard.
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How Tech Leaders Have Pulled Back
Major tech shares rallied Wednesday but remain down substantially from recent peaks. A sampling:
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Drop from Ticker 52-week Wed. 52-week Stock symbol high/low close high Compaq CPQ $51.25/$22.56 $24.25 -52.7% Micron Tech. MU 80.56/20.06 41.50 -48.4 Oracle ORCL 41.13/12.13 24.13 -41.3 Dell Computer DELL 55.00/16.81 38.44 -30.1 Apple AAPL 47.31/25.63 34.38 -27.3 Intel INTC 71.81/32.81 58.44 -18.6 Sun Microsys. SUNW 72.50/19.19 59.50 -17.9 Microsoft MSFT 95.63/40.94 82.00 -14.3 IBM IBM 199.25/106.00 171.88 -13.7 Hewlett-Packard HWP 83.88/47.06 75.13 -10.4 Cisco Systems CSCO 120.00/41.13 107.94 -10.1 Texas Instrum. TXN 114.88/45.38 108.75 -5.3 S&P; 500 SPX 1,358/957 1,336.12 -1.7
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Sources: Times research, Reuters
