Tech Stocks Drop on Microsoft Warning
Technology stocks tumbled Friday on a profit warning from Microsoft, the latest sign that an economic turnaround remains a ways off. But investors were selective in their punishment, leaving the broader market basically intact.
Hopes that earnings and the economy would improve by year-end have dimmed in recent weeks as more than 800 companies have warned of shrinking profits and many others have said business is so uncertain that they can’t make accurate projections.
The Dow Jones industrial average ended down 33.35 points, or 0.3%, at 10,576.65. Microsoft, which blamed its pessimistic outlook on slumping PC sales, led the way, dropping $3.39 to $69.18.
The market’s broader indicators also were lower. The tech-laden Nasdaq composite index fell 17.22 points, or 0.8%, to 2,029.37, and the Standard & Poor’s 500 index, Wall Street’s widest measure, slipped 4.17 points, or 0.3%, to 1,210.85.
Although past earnings are important, analysts say investors are more concerned with what companies, especially industry bellwethers such as Microsoft, have to say about the future--one reason the market this week pulled back from recent advances.
Given a bevy of disappointing news from the tech sector and the Microsoft warning, analysts were encouraged that the market didn’t fall harder. In fact, the market’s three major indicators were mixed for the week--Nasdaq down 2.6%, the S&P; 500 off 0.4% and the Dow up 0.4%--as they alternated winning and losing sessions throughout the week.
“The best that can be said is that we are seeing an attempt at a bottoming. A few months ago, this would have been a real problem for the market,” said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, noting that Nasdaq was able to stay above the crucial 2,000 level.
Another sign of relative strength was that more stocks posted gains than losses Friday on the New York Stock Exchange, where advancing issues narrowly outnumbered decliners 16 to 15. On Nasdaq, however, eight stocks fell for every seven that rose. Trading was active.
Analysts said the market has been frustrated by mixed signals from companies including Microsoft, which said last week that its fiscal fourth-quarter revenue would be better than expected. Microsoft’s report was in line with that forecast, but the software giant then issued a profit and revenue warning for its fiscal first quarter.
“It is almost a turnabout in a week’s time. I don’t believe anything I hear,” said Gary Kaltbaum, market technician for Investors’ Edge Partners.
Other tech losses included computer maker Gateway, which slid $3.60, or nearly 25%, to $10.99 after drastically lowering its estimates for the second half of 2001. Gateway said it anticipates breaking even, although Wall Street was expecting earnings of 11 cents a share in the third quarter and 21 cents a share in the fourth.
Computer stocks also were hurting from a report this week that the nation’s slumping PC industry has led to the first decline in worldwide PC sales.
Dell Computer fell 49 cents to $27.89 despite saying Thursday that demand is improving and that it is standing by its second-quarter earnings estimates of 16 cents a share.
Although PMC-Sierra said it expects business to improve in the second half of 2001, it fell $4.07 to $27.24 after Bear Stearns downgraded the stock. The brokerage cited excessive inventories and slumping demand.
There were some gainers, which included companies that beat earnings estimates or predicted business will improve in the near term. EBay, which did both those things late Thursday, climbed $2.40 to $66.80.
Sun Microsystems, which surpassed earnings expectations by a penny a share, rose 59 cents to $15.03.
Earnings aside, the broader market was mixed. Citigroup rose 41 cents to $50.56, and Coca-Cola fell 59 cents to $46.11. General Motors advanced 89 cents to $65, and Home Depot slipped 40 cents to $49.40.
A major bright spot: energy stocks. Oil prices, which have fallen sharply this month, rose 89 cents to $25.59 a barrel in trading on the New York Mercantile Exchange on news that OPEC was firming up plans to reduce production in an effort to bolster prices.
That gave a boost to shares of oil-field service companies and integrated oil companies. Halliburton, one of the biggest providers of oil-field services, was up $2.19 to $33.74, and Chevron rose $1.80 to $88.95.
Market Roundup, C4-5
