Jumper and ALL: Editor's Letter: Intel Delivers a Smack to the Bulls
By Dave Kansas
Editor-in-Chief
3/4/98 6:30 PM ET
Getting bad news after the close is like a slow-motion punch. You just can't avoid the blow. You stand, feet locked, desperate to run. But you can't.
That's what a lot of tech investors are feeling like as they anxiously grab a bite to eat or fumble through a recent research report. For, on Wednesday afternoon, amid some flickering stock market weakness, Intel reported that first-quarter earnings expectations had become too optimistic. Demand had slackened, and the Grove profit machine just wasn't up to the task of fulfilling the market's high hopes.
This kind of warning comes at a terribly awkward time. After a rambunctious February, technology stocks eased into March with less conviction. Strange things started to happen. Compaq made downcast comments at a Merrill Lynch tech conference. Intel and Microsoft began to slide from their highs. Tech executives started to resemble beleaguered auto chieftains of yesteryear, crowding microphones in front of lawmakers who know as much about microprocessors as my dog does.
By the time Intel formally announced the bad news, its stock was already slipping. On Feb. 23, Intel hit 94 3/16. Before news hit, the stock was at 87 7/16. In after-hours trading, the chip giant was at about 76. That's not pretty.
Mister Softee has been following roughly the same trajectory, dropping from 85 1/2 on Feb. 26 to 82 5/16 on Wednesday. The recovery in Microsoft and Intel had presaged the February zoom. Now that these bellwether tech stocks are stumbling, one has to wonder about March.
In the wake of the Intel news, investors will have to wonder whether this is an isolated moment of Intel overoptimism, or whether it's the first lapping waves of a real Asian problem. Recall that Intel feeds from the capital-spending trough. When companies are spending dough on technology upgrades (computers, networks, etc.), then a company like Intel is in good stead. When those spending programs begin to slow, then the Intels of the world have to face the music. And, in the wake of the Asian economic crisis, several analysts anticipated that companies would trim back on ambitious capital-spending plans both here and in Asia.
But it's hard to imagine that the Asian crisis will suddenly re-emerge as the real demon. Instead the stock market will now have to endure a far-more-ferocious-than-expected prereporting/warning season. First-quarter earnings news is still a month away, so there's going to be more hard news before we reach the safer shores of strong earnings in April.
Meanwhile, investors curious about the potential spread of an Intel-esque virus should watch the more capital-intensive stocks on Thursday, like the computer makers, other chip makers and the networkers. These stocks will likely tell the tale. If Intel's problems look like a case of more-isolated optimism, those stocks ought to show some resilience.
Whatever the case, Intel's news will bring a shock to the system. Unless, of course, you had been reading TheStreet.com. On Tuesday Eric Moskowitz reported how problems at Teradyne could quickly reach Intel. And on Wednesday morning Herb Greenberg noted that Compaq's woes, potentially stemming from channel stuffing, would make life very difficult for Intel.
No question life has become tough for Intel. The question is: Will life now become difficult for the entire stock market? Optimists, even those of the Midwestern stripe, won't like Thursday.
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Bond Thoughts: The 30-Year Treasury bond is muscling back above 6% even as companies like Intel and Compaq warn of difficult profit environments. Seems like a strange combination. When Friday's job news comes in hot, bonds will get even uglier. If bonds keep drooping and more companies report earnings trouble -- as they are expected to do in the coming weeks -- that would present a dreaded combination for stock investors. Weaker earnings and higher rates are precisely the opposite of the standard bullish scenario.
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MediaNotes: Our cousins at the New York Observer have a strange way of reading their own paper. Chris Byron writes a great piece on Donald Trump and neglects to mention the two TSC stories by Alex Berenson that have run in the two immediately preceding issues of the NYO. For a media cult journal, you'd think its own writers would read it more closely...
On the day after Bill Gates dueled with the government, Investors Business Daily had the following lead stories on its front page: A profile of the late Martha Graham, a story on educational problems in schools, a nice item on children's literature and a feature on something called FidoNet. Somebody help me with that one...
One thing missing in all the coverage of the technology chiefs' trip to Washington. Nobody seems willing to make the rather obvious point that Washington doesn't like the fact that all these tech guys haven't spilled tons of money into lobbying coffers and campaign war chests. You see, companies can make deadly cigarettes for decades if they butter that bread. But since tech companies have been busy creating jobs and making money, rather than enriching the Beltway establishment, they get hauled in right quick for some stern discussions about competition. It sounds remarkably like certain neighborhoods in which storekeepers have to pay some folks to, umm, look after the shop, lest anything go wrong...
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On The Site: Have to check out Herb Greenberg's column Wednesday morning. I wouldn't want to be near Compaq's stock right now...Great bond feature by Beth Roy, explaining the trip back above 6% on the 30-year Treasury...Suzanne Kapner right on the money with her coverage of Saks this week. The company warned of slower expansion plans today...Dan Colarusso with a great piece talking about how the options players were getting short on the tech stocks today. Dan also had a terrific piece on polyester in the morning...Robert Torray, a TSC 10 manager, now has more than $1 billion under management. Check out the funds notebook by Jamie Heller, Alison Pederson and Tracy Byrnes.
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Pancho
Yes, I know I am breaking copyright. Take it as an ad banner for street.com was Cramer caought with his pants down? I think that, unlike Pancho, the guy has beem selling for the last two weeks and keeping it to himself. Me, I was selling and telling everyone. |
