After struggling throughout the day for higher ground, tech stocks threw in the towel late Wednesday and went into a steep dive, taking the blue chips with them.
It was an unusual session, with the market straining to move in two separate directions. At one point in the afternoon, the Dow Jones Industrial Average was up by about 100 points, while the Nasdaq Composite Index was down almost 50. Something had to give.
In the end, the bears won out, and a last-minute selloff threatened to completely devastate the Dow's day-long rally. The blue-chip index ultimately rose 16.65 points to close at a record 10411.66, with the financial services industry again serving as a life-support machine. JP Morgan set the pace after reporting that first-quarter income more than doubled to US$3.01 a share, crushing the expected $1.73. The result followed similarly glowing returns a day earlier from Merrill Lynch and Paine Webber Group.
While an upbeat forecast from Lucent Technologies helped to offset concerns about Intel's revenue growth, traders wanted nothing to do with the tech camp. The Wired Index slid 18.28 to 667.30, and the Nasdaq Composite Index was 76.01 lower at 2507.49. The S&P 500 dropped 21.32 to 1328.50.
The market took its time digesting the mixed messages from Intel (INTC), which was down $3.38 at $57.13. On the one hand, the chipmaker topped expectations with quarterly income of 57 cents a diluted share. On the other, revenue came in at $7.1 billion, and analysts had been looking for roughly $7.3 billion. More significantly, Intel said its second-quarter revenue will be flat or slightly lower due to a seasonal dip in sales.
For many investors, the trick now is to connect the dots and compare Intel's showing with the big profit warning issued by Compaq Computer a few days ago. Just how bad are things for the technology industry?
"There's no problem in tech," answered James Meyer, research director for Janney Montgomery Scott. "Compaq is having a problem, but Compaq's problems are Compaq's problems. The fundamentals of the tech sector haven't changed."
That said, he believes investors are having a lot of trouble justifying sky-high price-earnings ratios for many tech stocks, and that this likely will remain the case until a major new product or breakthrough is announced. The upcoming release of Microsoft's Office 2000, followed eventually by Windows 2000, may be just what the market is looking for.
"It's hard to imagine someone with a brighter future," Meyer said of Microsoft. By extension, therefore, he sees no reason not to feel optimistic about other top PC players.
Emphasis on "top." While the likes of Microsoft, Intel, and Dell Computer should fare well over the long haul, second-tier outfits will find the going increasingly difficult. Case in point: Advanced Micro Devices (AMD), which slipped 31 cents to $14.69. The chipmaker was slated to report its quarterly results after the closing bell, and a loss of 71 cents a share -- or worse -- was anticipated. AMD has issued no fewer than three earnings warnings this quarter alone.
And what of Apple Computer (AAPL)? Its shares rose $1.13 to $35.75 amid hopes the company would beat estimates when it posted its quarterly returns after the market closed. Profit of 57 cents a share was expected, but traders were actually looking for Apple to blow past this number just as it did in the previous quarter.
At Home (ATHM) fell 13 percent to $159.06 after just hitting estimates with a pro forma quarterly loss of 7 cents a share, excluding charges. While analysts were generally upbeat about the cable-based access provider's results -- revenue was up 30 percent -- investors apparently were hoping for more in light of all the recent press about At Home's merger with Excite.
Similarly, traders are getting harder to please as far as America Online (AOL) is concerned. The planet's biggest online service lost $7.94 to $151.38 even as it announced that worldwide membership has increased 42 percent from a year ago to more than 17 million. Moreover, each AOL member is averaging 55 minutes a day online, or 10 minutes more than a year earlier.
Infoseek (SEEK) tumbled 24 percent to $60.38 as it reported a quarterly loss of 39 cents a share. This wasn't quite as bad as anticipated, but was still sufficient for a pair of brokerages to downgrade the portal's stock. Should be interesting to see whether this heats up or chills Disney's enthusiasm about taking a controlling stake in Infoseek as the two cobble together their Go Network.
From the IPO front, database software maker Sagent Technology (SGNT) climbed 73 percent to $15.56 on its first day of trading. The company debuted with 5 million shares initially priced at $9 each. Sagent lost nearly $14 million last year.
Microsoft (MSFT) unveiled a new pirate-proof player for online music, but managed to dazzle investors about as much as it's dazzled the music industry, which isn't yet sure it wants to party with the kids from Redmond. International Business Machines and RealNetworks are working on their own music format, and Apple's latest version of QuickTime will handle the popular MP3 standard, which should please more than a few Net-smart music fans. Microsoft's stock fell $4.25 to $85.88.
Lucent Technologies (LU) has watched its share price lose ground recently amid speculation the maker of telecom gear would report weak earnings. The company put a halt to such rumors by announcing that it expects to meet or exceed the expected profit of 15 cents a share. Its stock promptly reversed course and gained $2.06 to $59.
For its part, Motorola (MOT) advanced 69 cents to $83.63 after breezing past estimates with first-quarter profit of 28 cents a diluted share. The company credited the solid showing to increased sales of digital wireless phones and improvement in the semiconductor business. Motorola execs told analysts that second-quarter income could be as high as 42 cents a share.
Lastly, Intuit (INTU) lost $6.88 to $96.75 after the electronic-filing system for its widely used TurboTax software went on the fritz for more than 14 hours Tuesday. Although everything was up and running again by mid-afternoon, the glitch sent shivers through would-be taxpayers staring down Thursday's deadline. Well over a million people file their returns via Intuit's service.
Another scare like this, and the Internal Revenue Service will face an even steeper uphill battle in getting us all to switch to money-saving (for them) electronic forms. On the other hand, the lines are already growing at the post office.
