Microsoft Drop Drags Nasdaq Down
Mighty Microsoft--the company that is the government’s biggest antitrust target--looked a lot less imposing to investors Wednesday, as the stock was hammered down 7% in the wake of slow quarterly earnings growth.
The software giant’s shares led a broad decline in tech issues and helped pull the Nasdaq composite index down 121.54 points, or 2.9%, to 4,055.63, leaving it once again in the red for the year to date.
The broad market also was lower, dragged down in part by some high-profile earnings disappointments. But most major indexes held up better than Nasdaq.
The Dow Jones industrial average fell 43.84 points, or 0.4%, to 10,696.08.
Losers topped winners by 25 to 14 on Nasdaq. But the sell-off came amid slowing trading volume: 1.4 billion shares changed hands on Nasdaq. Weakened volume in a sell-off encourages market bulls because it suggests there is no big rush for the exits.
With second-quarter earnings- reporting season in full swing, investors were quick to register their approval or disapproval of companies’ results.
On the plus side, financial services giant Citigroup saw its shares rise $1.31 to $68 after reporting a 23% rise in quarterly earnings. The company also declared a 4-for-3 stock split.
Coca-Cola also impressed investors by reporting results above expectations thanks to stronger-than-expected foreign sales. Coke’s shares gained $2.31 to $60.50.
But Microsoft set a poor tone for the tech sector, falling $5.38 to $73.13 on volume of nearly 70 million shares, after reporting weak earnings late Tuesday.
The company said second-quarter sales were stagnant and that earnings were up largely because of investment gains.
“The company seems unable to overcome the steady maturation of its core PC business, which represents 65% of its total revenue,” said Drew Brosseau, an SG Cowen Securities analyst. He cut his Microsoft rating to “neutral” from “buy.”
Prudential Securities also downgraded the stock to “accumulate” from “strong buy.”
Other analysts said the problem is a seasonal one. “The summer is always a dog for software companies,” said William Epifanio, analyst at J.P. Morgan, who rates Microsoft a “buy.”
“Europe’s closed down, people are on vacation and this is the lull in the year. I think the next big quarter will be December,” Epifanio said.
But two key hardware makers also took hits Wednesday in the wake of their earnings reports late Tuesday: Intel slumped $4.88 to $138.13, and Apple Computer dropped $4.56 to $52.69.
“It’s the Super Bowl syndrome. The reality never lives up to the hype,” said John Eade, director of research at Argus Research in New York. “The Nasdaq rallied last week ahead of earnings, but now that companies are reporting, investors are taking some profits.”
Bucking the trend, however, was IBM: Its stock surged $5.44 to $108.75 in late trading Wednesday after the company reported better-than-expected results.
In the bond market, meanwhile, Treasury yields edged up slightly on speculation that Federal Reserve Chairman Alan Greenspan, who testifies before the Senate today, may suggest that the Fed will raise interest rates again this year.
Among Wednesday’s highlights:
* Tech issues hit hard on earnings news included Veritas Software, down $15.31 to $112.25; Commerce One, down $11.25 to $55.31; Foundry Networks, down $26 to $98.13; and Boston Scientific, down $6.88 to $18.88.
* Stocks rising on earnings news included Liz Claiborne, up $3.13 to $41.75; Univision, up $3.94 to $113.25; and Bank One, up $2.50 to $32.50.
* Walt Disney jumped $1.25 to $37. PaineWebber analyst Christopher Dixon raised the stock to “buy” from “attractive,” citing strong TV ad sales and a more positive outlook for the entertainment company’s films and theme parks. He expects the stock to rise to $52 within a year.
* Many food stocks rose with Keebler Foods, which soared $8.75 to $44.13 after saying it may put itself up for sale.
* Utility stocks also resurged, lifting the Dow utilities index 1.3%.
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Market Roundup: C11-C12
