Wall Street took a tumble Wednesday as disappointment over Dell Computer reporting strong -- but not strong enough -- earnings for the latest quarter spread beyond tech stocks to hammer blue-chip shares as well.
It's becoming a constant refrain: Do recent earnings justify current sky-high valuations? Gradually, investors are coming to accept that they do not, but many remain in a state of denial. This is resulting in stomach-churning daily market swings.
Expect the turbulence to continue, possibly for months, until traders acclimate to the notion of cruising at a slightly lower altitude.
The Dow Jones Industrial Average fell 101.56 points to close at 9195.47, and the Nasdaq Composite Index was down 64.89 at 2248.98. The S&P 500 shed 17.82 to 1224.05.
Investors, long accustomed to riding the gravy train as far as Dell (DELL) is concerned, knocked the company's stock for a loop after it said fourth-quarter revenue was up just 38 percent, far less than the 56 percent average growth rate for the past eight quarters. Never mind that Dell's quarterly profit increased 49 percent to 31 cents a shares, in line with estimates.
The prospect of slower sales was sufficient to deeply disappoint traders, who pushed Dell's shares down US$7.19 to $81.56.
"It's pretty difficult to be disappointed with growth three and a half times the industry rate," said Scott Butler, an analyst with Pacific Crest Securities. "But it looks like Dell's growth is slowing, and the Street is taking a pound of flesh from them. The market is not very forgiving."
No kidding. Investors weren't even placated by Dell announcing a two-for-one stock split, its seventh in the last seven years.
Hewlett-Packard (HWP) felt the market's sting as well after posting revenue growth of only 1 percent from a year earlier. Investors virtually ignored the fact that HP's quarterly income reached 92 cents a share, easily whipping the anticipated 83 cents. HP's stock slipped $2.50 to $68.
Amid all this bloodletting, traders essentially overlooked Applied Materials (AMAT) coming through with operating profit of 11 cents a diluted share, excluding the usual charges and whatnot. This was almost double analysts' expectations. On top of that, the leading maker of chip-production gear said it expects to see earnings of as much as 25 cents a share in the current quarter as semiconductor outfits boost spending on new machines.
Still, Applied was 25 cents lower at $67.63 as tech stocks went generally kerblooey. Morgan Stanley Dean Witter reiterated a "strong buy" rating for the company's shares and raised its price target to $86 from $80. Meantime, Donaldson, Lufkin & Jenrette upgraded Applied to "top pick" from "buy."
Elsewhere in tech, International Business Machines (IBM) shed $2.25 to $170.25, while Intel (INTC) was down $1.75 at $124.63. Cisco Systems (CSCO) fell $3.94 to $95.13, and Microsoft (MSFT) was $6.19 lower at $150.06.
Some intriguing speculation from the Net Front: The Wall Street Journal says America Online (AOL) is negotiating with eBay (EBAY) to purchase a minority stake in the online auctioneer. If so, you have to wonder how eBay's already spotty service will handle the crush of millions of giddy AOL members spilling onto the bidding floor. AOL slid $6.13 to $153.38, while eBay was up $1.88 at $233.
Geoworks (GWRX), a maker of software for wireless phones, surged 56 percent to $5.25 after Amazon.com (AMZN) bought approximately 7 percent of the company for $5 million. Amazon, which has been actively looking to expand its horizons beyond the online shopping business, slipped $5.13 to $93.50.
Could it be that investors are actually beginning to question valuations of Net stocks as well? Access provider EarthLink Network (ELNK) fell 13 percent to $58.31 even as it matched estimates with a quarterly loss of 17 cents a share, and community builder theglobe.com (TGLO) was down $2.88 at $46.38 after posting a better-than-expected loss of 76 cents a share.
In telecom, AT&T (T) dropped 44 cents to $84.19 even as its shareholders gave their nod to the company's more than $57 billion acquisition of Tele-Communications Inc. And Lucent Technologies (LU) shed $1.75 to $96.25 despite announcing a two-for-one stock split, its second in a year.
Lastly, some news from down under: not Australia -- the sewer. An outfit called Insituform East (INEI), which fixes holes in the tunnels that carry ... stuff ... doubled to $2 after another outfit called Insituform Technologies, which makes sewer tunnels, put in an unsolicited bid to buy the first Insituform for $2.50 a share.
At least no one can accuse these Insituform guys of being overvalued.
