US technology stocks plunged along with the Dow Jones Industrial Average yesterday in what one analyst said was a correcting of a market full of inflated stocks, particularly Internet stocks.
The Dow Jones Industrial Average plummeted 512.61 points, more than 6%, in its second worst drop ever, taking technology and other stocks down with it. One exception to the drop in tech stocks was ERP (enterprise resource planning) application vendor PeopleSoft , whose stock rose 87 cents, or 3.21 percent, to close at $US28.12.
"We've been expecting something like this for a while," said Dave Jones, an analyst at the California Technology Stock Letter in Half Moon Bay. The drop will put pressure on overseas markets, he said, adding that it is likely that stocks could continue falling before the market stabilises again.
Of the technology stocks, Internet stocks were the hardest hit. Excite dropped $8.81 (28.8%) to $21.75, Netscape Communications fell $5.37 (23%) to $18.12; Yahoo fell $14 (17%) to $69; and America Online Inc. dropped $14.31 (14.8%) to $81.94.
Other major losers were Dell Computer , which plunged $18.75 (15.8% to $100; Advanced Micro Devices (AMD), which fell $2.19 (14.4%) to $13; Cisco Systems, down $12.81 (13.5%) to $81.87; Novell, down $1.25 (11.63%) to $95; Computer Associates, down $3.50 (11.5%) to $27; Gateway 2000, down $6 (11.36%) to $47.31; and AT&T, down $5.68 (10%) to $50.50.
Some big-name computer companies had less significant losses, including: Microsoft Corp., down $9.31 (8.8%) to $95.94; IBM, down $9.93 (8%) to $112.62; Intel, down $5.81 (7.5%) to $71.18; 3Com, down $2.37 (9.1%) to $23.68; Compaq Computer, down $2.81 (9%) to $27.94; Apple Computer , down $3 (8.8%) to $31.18; Oracle, down $1.37 (6.4%) to $19.94; Sun Microsystems , down $2.62 (6.2%) to $39.62; and Hewlett-Packard, down $2.93 (5.7%) to $48.56.
Jones at the California Technology Stock Letter could not explain why PeopleSoft stock alone rose. However, he said the drop in Internet stocks came as no surprise. "They deserved to get hit hard because it's way too early to see any sort of stabilization" with those stocks, he said.
Meanwhile, Dell, Cisco, Microsoft and other big IT vendors are at risk because their stocks have reached such high prices compared to what analysts estimate earnings for the companies will be in coming quarters. "A lot of these other companies are vulnerable because analysts will lower what they think the companies will earn next year," Jones said.
"People thought we were in a perfect economy... that it was going at just the right speed, assuming these companies would tend to have 10% to 15% earnings growth year-in and year-out," Jones said, explaining the cause of the drop.
As far as how the stock plummets might affect a company's product development and releases, Jones said well-managed companies will continue to invest in research and development even through rough times.