TheStreet.com's MIDDAY UPDATE
December 10, 1997
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Midday Musings: Fallout from Oracle Is Intensifying
By Justin Lahart
Staff Reporter
The Oracle-sparked selling is getting worse.
Oracle's (ORCL:Nasdaq) second-quarter earnings disappointment, announced
after the close on Monday, and its attending commentary on the dismal
outlook for its Asian business, is dealing a mighty blow to year-end rally
hopes.
At midday, the skid has sharpened after a morning of only modestly lower
trading. The tech-laden Nasdaq is off 32.44 at 1588.11. The rest of the
market isn't doing so well either -- the Dow Jones Industrial Average is
down 95.73 at 7953.93, dropping below the 8000 level, and the S&P 500 is
down 11.13 at 964.65.
As investors sort through the Oracle mess, they wonder if the company is
suffering from a company-specific problem (chucklehead management thesis)
or if it's suffering from a macro problem that is slowly but steadily
infecting the entire tech sector (global nightmare thesis).
Right now, as stocks edge lower, the global thesis is gaining ground.
Indeed, Wall Street is struggling to somehow quantify the impact of the
Asian troubles on future growth rates. Without any easy answers, and folks
like Oracle offering only dour pronouncements, investors are growing
increasingly edgy.
"I think that investors are very jittery and they're blowing out stocks,"
says Paul Rabbitt, executive director of equity research at CIBC
Oppenheimer, who thinks that the move down may be overdone, but worries
that the market's psyche is damaged enough that it will be some time before
tech comes back. Rabbitt doesn't expect to see tech do anything until late
in the first quarter, when he says that, phoenix-like, it will lead the
broader market out of a general slump. Until then, he's underweight.
Still others are sticking with the chucklehead management thesis even as
stocks drop.
"Things could change tomorrow, that's the crazy thing," said Lou
Mazzucchelli, PC analyst at Gerard Klauer Mattison. "I think that [Oracle
CEO Larry] Ellison pissed in the pool for everybody. It's scaring people
for the wrong reason. I'm looking at Gateway (GTW:NYSE) down 1 1/2 -- come
on."
Mazzucchelli thinks that investors are throwing out the baby with the
bathwater. Besides believing that Oracle's problems are more database
company-specific than anything else, he says that many PC makers, like
Gateway and Dell (DELL:Nasdaq), have very limited Asian exposures.
Mazzucchelli also says that the box makers are indicating to him that the
fourth quarter is going to be strong, and that they'll soon be making moves
to reassure the market.
"You're going to have the PC guys reminding people that they're having a
good quarter," he said. "Everyone I'm talking to says that they're having a
pretty good quarter. People in the channel say that things are OK."
But one trader says that there's a story in the market that Compaq
(CPQ:NYSE) is having problems in its sales channel.
******
It's not just the techs that are having trouble in four-letter stock land
-- the worst performers on the Nasdaq today are Vivus (VVUS:Nasdaq), a
biotech, and Fastenal (FAST:Nasdaq), a fastener company. Both companies
issued earnings warnings today.
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