It shows how fragile investor sentiment is running that a day after some of the most impressive gains ever, tech stocks were tumbling once again Friday following some wary words from analysts about Dell Computer's prospects. Just a suggestion of trouble was enough to make traders duck and cover.
Meanwhile, as the Monica Lewinsky saga came to an end, the Lycos soap opera continued.
The Dow Jones Industrial Average shed 114.31 points to 9249.15 in mid-afternoon trading, and the Nasdaq Composite Index was down 79.85, or 3.32 percent, at 2325.70 after soaring more than 4 percent a day earlier. The S&P 500 fell 26.09 to 1227.95.
Investors were in a cautious mood anyway as the impeachment trial of President Clinton reached its conclusion and with a three-day weekend approaching, so the outlook for Dell (DELL) was more a convenient excuse than a full-blown reason to dump tech shares.
BancBoston Robertson Stephens and Salomon Smith Barney both warned that Dell is facing tougher competition as rival PC makers learn from Dell's example. Sales growth and revenues may fall, they said, although one analyst observed that "Dell's business model is still the best in the industry."
Dell's stock dropped US$10.38 to $91.50, and other tech shares followed suit. International Business Machines (IBM) fell $6.25 to $172.25, Intel (INTC) shed $6.81 to $126.44, and Microsoft (MSFT) was down $4.38 at $158.38.
"Every broker you talk to today talks about technology, the Internet, and PCs," said George Koo, associate director of Burnham Securities. "This is propping up the sector.
"The moment a company misses its earnings target," he added, "its stock is hit with a vengeance. This will continue. You have a nice ride up, then it blows off a little steam, then you have another nice ride up."
The roller-coaster effect is being felt as well among Net shares -- and Lycos (LCOS) must feel as though it's on the thrill ride from hell. After losing almost a third of its value earlier in the week, the company's stock rebounded 18 percent Thursday amid speculation that Lycos' biggest shareholder, venture-capital firm CMGI, might vote down a merger with USA Networks (USAI).
In fact, CMGI said in a statement that its "long-term view of the prospects of the Lycos-USA transaction remains very positive, but we want to ensure that the overall deal proves to be accretive to Lycos shareholders." CMGI added that it will "continue to evaluate our position as the synergies of the deal are better understood by the markets," which certainly leaves the door open to changes of heart.
Edgar Bronfman Jr., CEO of Seagram, which owns approximately 45 percent of USA Networks, decided to enter the discussion by pointing out that Lycos was "trading at an about $7.5 billion market cap with about $75 million in revenue." He said that Lycos chief exec Robert Davis is a "smart guy who recognized his stock was sitting on vapor and he couldn't sustain the multiple -- and that he needed a real business."
Um, thanks, dude.
Lycos, soon-to-be parent of Wired News, slipped $2.75 to $100.50 as investors tried to figure out what the hell was going on. USA Networks was $1.75 lower at $38.25.
A couple more tech stocks made their market debuts, but received a relatively tepid response amid the day's otherwise harsh conditions. Onyx Software (ONXS) gained a mere 63 percent to $21.25 after offering 3.1 million shares initially priced at $13 each, and Bottomline Technologies (EPAY) climbed just 50 percent to $19.56 after arriving with 3.4 million shares also priced at $13 apiece.
