Tech stocks were hammered Friday following some wary words from analysts about Dell Computer's prospects. It shows how fragile investor sentiment is running that just a suggestion of trouble was enough to make traders duck and cover only a day after some of the most impressive tech gains ever.
The broader market also took a beating as investors played it safe by locking in profits from Thursday's run-up ahead of a three-day weekend. Meanwhile, as the Monica Lewinsky saga came to an end, the Lycos soap opera continued.
The Dow Jones Industrial Average shed 88.57 points to close at 9274.89, and the Nasdaq Composite Index was down 83.61, or 3.48 percent, at 2321.94 after soaring more than 4 percent a day earlier. The S&P 500 fell 23.91 to 1230.13.
With investors in a cautious mood anyway as the impeachment trial of President Clinton reached its conclusion and ahead of the holiday weekend, 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 12 percent to US$89.88, and other tech shares followed suit. International Business Machines (IBM) fell $5.25 to $173.25, Intel (INTC) shed $6.75 to $126.50, and Microsoft (MSFT) was down $5 at $157.75.
"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 was 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, voiced his support for the tie-up 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.
"I'm not so sure the merger with USA Networks is going to work," said Burnham's Koo. "What's holding it together now is the egos of the people putting it together. They're trying to save face."
While Lycos shareholders clearly won't lose any sleep if the takeover collapsed, Koo believes the leading actors in the melodrama -- led by USA's turbo-charged CEO Barry Diller -- might be turning a deaf ear to the market's grumbling. "Diller is trying to rebuild his career," Koo said. "He and the others may just do the deal for the sake of doing the deal."
Lycos, soon-to-be parent of Wired News, slipped $3.75 to $99.50 as investors tried to figure out what the hell was going on. USA Networks was $2 lower at $38.
Several more tech stocks made their market debuts, but received a relatively tepid response amid the day's otherwise harsh conditions. Onyx Software (ONXS) gained 81 percent to $23.56 after offering 3.1 million shares initially priced at $13 each, and Bottomline Technologies (EPAY) climbed 57 percent to $20.47 after arriving with 3.4 million shares also priced at $13 apiece.
Serena Software (SRNA) rose 16 percent to $15.13 after selling 6 million shares initially priced at $13. And on its second day of trading, online service Prodigy Communications (PRGY) was up another 26 percent at $35.44. The company's stock more than doubled in its debut a day before.
Brooktrout Technology (BRKT), a maker of gear for PC and fax messaging systems, fell 17 percent to $10.94 as it posted fourth-quarter pro forma earnings of 16 cents a share, excluding a charge from acquisition of Lucent Technology's computer-telephony products division. Analysts had been looking for profit of 18 cents.
Customers of cable giant Tele-Communications Inc. (TCOMA) may be heartened to learn that AT&T (T) Chairman C. Michael Armstrong plans to take an active role in the firm's operations after TCI's takeover is completed. At present, TCI doesn't exactly have the best reputation for service. AT&T slid $2.25 to $85.94 along with most other telecom stocks, and TCI was down $2.75 at $64.63.
Boston Scientific (BSX), on the other hand, gained 81 cents to $26.81 after cheering investors with news that the medical-device maker will take a $62 million charge in connection with its belt-tightening decision to give 2,000 workers the heave-ho. Needless to say, investors were a bit more concerned about the company's bottom line than the notion that a couple of thousand people are losing their jobs.
Lastly, and just in time for a certain day of mandatory romance, Vermont Teddy Bear (BEAR) was unchanged at $2.28. The company this week reported quarterly profit of 2 cents a share, compared with a loss of 20 cents a year earlier.
Procrastinating Romeos may still be able to get a bear delivered, if they hurry.
