Insider Selling at Tech Firms
Stirs Fears of Some Analysts
By LAURA SAUNDERS EGODIGWE
Staff Reporter of THE WALL STREET JOURNAL
The people who know technology's most-watched companies best have
been cashing in plenty of chips recently.
High-level insiders last month sold at software makers, semiconductor
manufacturers, hardware firms, networking-equipment makers and
storage-device companies.
The large volume of selling, coupled with
subsequent earnings warnings from several
industry leaders, has put some analysts on alert
for more troubles in the industry, over the short term at least. Because
insiders are believed to be looking out a quarter or two, some analysts use
such transactions, along with other research, as a predictive tool.
Although technology stocks rallied Wednesday on Microsoft Corp.'s
forecast of stronger-than-expected earnings for the next two quarters, the
level of insider selling may indicate, or simply reflect, short-term troubles,
observers said.
"The next two months are going to be tough for technology, particularly as
some of these stocks work their way through inventory problems," said
Craig Columbus, vice president of research at Disclosure Inc., a Bethesda,
Md., concern that tracks insider transactions for institutional investors.
Heavy Selling in Software
Net selling in the industry totaled nearly $3 billion in February, the latest
month for which data are available, according to Federal Filings Business
News, a Washington news service that monitors filings with the Securities
and Exchange Commission. This compares with $213.5 million in net sales
in December and $621.3 million in February 1997.
The heaviest selling came from software makers last month, largely because
of a mammoth sale at Microsoft; circuit-board makers experienced the least
selling. "It's the most selling I've seen within the industry in over a year," said
Kevin Donovan, senior technology analyst at Federal Filings.
Selling is common in the technology sector because, more than in any other
industry, stock options are a big part of executives' pay. During certain legal
"windows" of time, an executive might sell to take a profit, pay taxes on the
exercise of options to buy the stock in the first place, or for personal
reasons. America Online Inc.'s chief executive, Steve Case, recently sold
500,000 shares in a move partly related to his recently finalized divorce,
said people familiar with the situation.
Among the most noteworthy recent sellers were executives at Intel Corp.
Company insiders, including President Craig Barrett, who hasn't sold since
1993, according to CDA/Investnet, sold stock weeks before a March 4
earnings warning from the bellwether semiconductor maker that rocked
financial markets.
Days after, Compaq Computer Corp. announced its own bearish forecast;
before that, insiders at the company sold 1.2 million shares at prices as
much as 30% above recent levels.
Insiders at Internet companies, which lately have been seen as a tech haven,
also reduced their stakes last month. Netscape Communications Corp.
insiders sold 925,000 of the Web-browser company's shares. The sellers
included co-founder Marc Andreessen, who cut his stake by 25% with a
sale of 375,000 shares.
The selling continued last month, as top executives at AOL, Yahoo! Inc.,
Dell Computer Corp., Electronic Data Systems Corp., Sun Microsystems
Inc., 3Com Corp. and Ascend Communications Inc., among others, cashed
in some of their holdings. Microsoft Chairman Bill Gates and cofounder
Paul Allen sold about $1.5 billion worth of stock last month.
But while selling can occur for reasons that have nothing to do with a
company's fundamentals, some observers are taking note of the timing of
the recent sales. Intel especially has been followed because of its leadership
position and because there has been a correlation between selling and
moves in the stock price.
Intel insiders have been selling more stock "at successively lower prices,"
said Bob Gabele, president of CDA/Investnet, a Fort Lauderdale, Fla.,
company that tracks insider buying and selling patterns. From Jan. 26 to
Jan. 30, eight Intel insiders sold 947,164 shares at prices of $75 to $82.50
apiece as the stock moved off lows in the $70 range, according to
CDA/Investnet.
But the selling at Intel may say more about its operating environment than
about the company's fundamentals, Mr. Gabele said.
Sales at Computer Retailers
Even insiders at computer retailers are selling. From Feb. 2 to Feb. 23,
CompUSA Inc. executives sold 605,249 shares, valued at about $18
million, according to Federal Filings. The 14 sellers included James Halpin,
the company president, who according to Federal Filings, sold 360,000
shares, his largest sale since 1993. CompUSA executives also have
demonstrated good timing in the past, observers said. The latest sales
occurred at share prices of $30.88 to $33.15. The stock closed
Wednesday at $26.6875 in New York Stock Exchange composite trading.
For their part, most of the companies cite the windows of opportunity for
such transactions and point to the fact that the executives retain large
holdings in their respective companies.
Recent selling hasn't overly alarmed some analysts, who remain bullish on
the sector's long-term prospects. They said that in the face of the challenges
ahead for certain segments, insiders most likely are acting as any investor
would. "Management teams are coming to the same conclusion as most
investors, that part of the industry is coming under serious competitive
pricing pressure and so there might not be meaningful upside in the next six
months," said Henry Blodget, an analyst at CIBC Oppenheimer. |
