The Nasdaq stock exchange, heavily loaded with technology stocks, skidded badly at the end of last week in a flurry of technology stock sellouts following Hewlett-Packard's announcement of lower-than-expected earnings.
Nasdaq fell 34.83 points, or 3%, last Thursday in one of the worst drops since Wall Street's October 1987 crash, when it fell more than 46 points. On Friday, the drop continued at a calmer 2.875 points. The Dow Jones industrial average, meanwhile, fell 83 points, or 1.5%, on Thursday and again 10 points on Friday.
HP tumbled, too, falling US$10.625 on Thursday to close at US$78.375 after the company announced slow sales for disk drives, printers and workstations and a decline in orders from Europe. On Friday, it fell slightly again, to US$78.125
Last week's stock market plunge followed announcements from several large technology companies, including Motorola, Advanced Micro Devices and Digital Equipment of lower-than-expected profits. Motorola reported a 32% drop in second-quarter profits last Tuesday, while AMD Thursday announced a loss of US$34.7 million for its second quarter. Digital, which announced earnings predictions earlier this month, reported that it would cut 7000 jobs and would take up to a US$200 million loss by year's end as a slow PC sales and sluggish European revenue.
Though news from Motorola and Digital initially sent stocks on a downward turn, analysts says HP's announcement had a more wide-reaching scare for the market. "It's one thing for DEC to have a lousy quarter, since they have had several lousy quarters. But it's another thing altogether when Hewlett-Packard has a lousy quarter. HP has consistently been one of the most successful and enduring companies in Silicon Valley," says Eric Lewis, manager of personal systems research for International Data.
"HP was definitely the most important of the announcements, since they saw weak orders across the board, whereas AMD and Motorola had more company-specific problems," says Michael Murphy, editor of the California Technology Stock Letter, based in Half Moon Bay, California. Though the skid was major, most analysts are confident the stock market will soon see an upturn as a result of continuing positive growth in the PC industry.
"Once results from PC companies such as Inte come out, people will see we had a decent quarter and the stock market will go back up," says Lewis. Intel is expected to release its earnings today, with a positive effect on the stock market. "The industry can expect to see stock prices begin to climb back up after the Intel announcement", says Murphy.
"The most disappointing earnings get announced first," Murphy says, adding that Microsoft, which will announce earnings on July 22, also predicts positive second-quarter results. "We are seeing the bottom right now, and Thursday's fall seems to be the worst of it," he says. "While corporate PC sales are picking up and the industry is predicting 19% growth in the PC market and 15% in the semiconductor market by the end of the year, it may take Wall Street longer to change their minds." Murphy is buying high-tech stocks and advising investors to follow suit.
Other analysts agree that this is a good time to buy. "I don't think we will ever see a better bargain in high-tech stocks," says Phil Devin, an analyst at Dataquest, who is betting that the stock market will climb back up again at the end of August. Some analysts aren't as upbeat about high-tech stock prospects, however. Bailard, Biehl & Kaiser, a San Mateo, California-based investment advisory firm has told its clients to refrain from investing in technology stocks and last month reduced its weighting in all stocks from 50% to 40%.
"We are very cautious in the market right now and believe it will be almost impossible for the technology market to duplicate the doubling and tripling of profit margins that it experienced in the fourth-quarter 1995 and in the beginning of the year," says Art Micheletti, investment strategist at Bailard, Biehl & Kaiser, who says that his firm is betting that high-tech stocks will plummet an additional 10% and will be slow to come back.