Downturn In Tech Stocks Gains Momentum
By ANTHONY PALAZZO and CARMEN FLEETWOOD
Dow Jones News Services
NEW YORK -- Investors sought higher ground as the washout in high-technology stocks accelerated Wednesday.
Networking stocks, which have yet to find downside resistance despite steep recent declines, led the way, along with chip makers and software companies. Even Microsoft Corp. (MSFT), which had managed to avoid the recent deluge, was caught up in the waves of selling.
''Technology stocks historically overreact, like a pendulum, on both the up and down side,'' said Michael Geran, an analyst with the Pershing Division of Donaldson Lufkin & Jenrette Securities Corp. ''These stocks are very modish. When they go out of fashion, boy they go out,'' he said.
Wednesday, the Morgan Stanley High Tech 35 index fell 3.3%. Market observers cited numerous reasons for the sell-off. Those included additional signs of slowing growth from networking leaders Cisco Systems Inc. (CSCO) and 3Com Corp. (COMS), more cautious comments from influential market players, and the exiting of the sector by momentum investors, who had helped drive prices up in the first place.
Nasdaq's computer index is now 17.2% off an all-time high set on Jan. 22.
In several media reports, executives at both 3Com and Cisco warned that big customers were slowing the pace of their purchases. Cisco was off 2 1/2, or 5%, to 47 7/8. 3Com fell 2 3/8, or 7%, to 31 3/8. Cabletron Systems Inc. (CS), Cascade Communications Corp. (CSCC) and Shiva Corp. (SHVA) also fell.
Ascend Communications Inc. (ASND) lost 5 1/8, or 10.6%, to 43. Its fall was aggravated by concerns about competition from U.S. Robotics Corp. (USRX) after its merger with 3Com, generally stronger competition as consolidation accelerates in the networking field and slower decision-making by Ascend's Internet service provider customer base.
''It's been one of the best momentum stocks, and when the momentum players get out of the stocks, watch out below,'' said Ashok Ahuja, who runs a small technology hedge fund in Weston, Conn.
Ahuja said he's been doing some short-selling lately and moving ''a little more into cash and stocks that on a value basis seemed like they were relatively safe.''
Among chip makers, Intel Corp. (INTC) was off 3 5/8, or 2.7%, to 133 1/8. Micron Technology Inc. (MU) fell 1 1/4, or 3.1%, to 38 3/4.
Microsoft fell as much as 4 11/16. Recently it was off 4, or 4%, at 95 5/8.
''The stock has held up really well through what has been an incredibly bad technology market over the past six weeks,'' said Andrew Brosseau, an analyst with Cowen & Co.
Market observers differed on what they expect from technology stocks going forward, but some brokerage houses are bracing for the worst.
Wednesday afternoon, PaineWebber's national sales manager, Ward Carey, exhorted his troops: ''Keep the faith, these companies are not going out of business.''
David Gardner, one of the founders of the widely followed Motley Fool on-line financial bulletin board, said he's not worried because he takes a long-term view of investing even though he's ''feeling the pain as much as anybody.'' The Motley Fool portfolio is off 10% since January but is up 144% over the past three years, he said.
John Swinford, vice president of research for Raborn & Co. funds, said he doesn't expect a recovery to take hold until the late summer. On the other hand, several analysts expect a rebound within a month or so.
''You never know quite what the point of capitulation is going to be,'' said Ahuja, the hedge fund manager. ''The way you can tell a sector is totally washed out is if bad news comes out and the stocks actually start coming up.''
For instance, he said, analysts expect 3Com to report weak quarterly earnings after Thursday's market close. If the stock begins coming back next week, despite all the bad news, ''I'd say the likelihood's pretty strong that the selling is all done,'' he said.
Other potential near-term signposts include Cabletron's earnings and the Federal Reserve meeting scheduled next week, and calendar first-quarter earnings reports in April.
''The market hates uncertainty,'' said Dan Niles, an analyst at Robertson Stephens & Co.
But the uncertainty isn't likely to end for a while.
Cowen's Brosseau said that underneath the current selling, he sees the beginning of a sea change. ''What's going on in the computing market in our view is the early stages of a change in approach that organizations are taking in building and deploying large information systems,'' he said.
Just as corporations moved from large mainframes to more distributed client/server systems five years ago, now they are decentralizing further, Brosseau said, into a new approach that incorporates Internet and object technologies. Objects are prefabricated chunks of code that make it easier to build software applications than coding by hand.
The change has affected the quarterly earnings of many leading computer companies, and is being reflected in their current stock prices, Brosseau said. Companies must adapt to the shifting environment, or lose ground to competitors.
''The important thing to remember is that while this can be painful in the short term it can be positive in the long run,'' spawning new market leaders and new investment opportunities, he said. |
