No kidding. Big negative money flow and big blocks being sold. An article for the thread:
Dell, Lucent, Qwest: A Tale of Three Tech Stocks
By Jim Seymour
Special to TheStreet.com
2/19/99 12:33 PM ET
Three of my favorite tech stocks are finishing a messy week after painful slides. Dell (DELL:Nasdaq), Lucent (LU:NYSE) and Qwest (QWST:Nasdaq) all bounced around in this truncated week and are down 12% to 23% over the past month or so.
This sloppy week, featuring three confusing days in which the Nasdaq had slipped about a hundred points through Thursday's 2260 close, has had me thinking about why each stock went through those slides, and what those drops can teach me about what's going on in tech right now.
Clearly, substantial if inevitably transient changes are under way in techs. For one thing, the bloom is off e-commerce for now. Just ask Amazon (AMZN:Nasdaq) holders, who've watched the stock price fall from Jan. 8, when it briefly touched 199 and change, to yesterday's painful 89 1/2, down another 4. And Dell, a primary source of leadership among techs, is off almost a quarter over just the past two weeks.
I think these three stocks represent three different cases. Certainly all were influenced by the tech market's general malaise over the past few weeks, and certainly there were interactions: For example, Dell's and Microsoft's (MSFT:Nasdaq) sagging prices brought down the whole tech sector. But this wasn't just a case of a falling tide grounding all boats equally.
Dell
Dell closed yesterday at 83, up 1 1/2 from Wednesday, but a long and painful way down from its 108 5/8 closing high Feb. 2. Dell's quarterly earnings report was the main event in the market over the past week, leading to choppy trading before it was released Tuesday afternoon and a steady slide since.
Part of that slippage was well deserved, as Dell forfeited some of the substantial share-price premium it has enjoyed over its peers -- a premium based on superior execution. Dell's misreading of the rate of decline in component prices during the fourth quarter, plus other management bobbles, meant that the company hit its numbers but saw revenue in the fourth quarter rise just 38% -- as opposed to its 56% average over the previous eight quarters.
Few other companies would take a hit when reporting 38% growth, but Dell's history has led to extraordinary expectations. Miss 'em and you pay big time.
Dell's quarter may also be a warning to pending slowdowns in PC hardware sales, as companies throttle back information-technology capital spending to divert funds to Y2K remediation efforts. For example, Toshiba, the big dog in notebook PCs for business, just announced that it expects 1999 PC sales to come in around 2% below earlier estimates.
Just between us, I'm also a little worried about Dell's comments that it's considering entering the sub-$1,000 PC market in an effort to generate revenue. Revenue, yes, but profits, no, I fear. That slice of the PC market is a deadly one: The old line about losing money on every sale but making it up on volume comes to mind. Sure, with falling prices for entry-level CPUs such as Intel's (INTC:Nasdaq) Celeron and AMD's (AMD:NYSE) K6-2 and K6-3, and the continuing free fall in disk-drive prices, it may be possible for Dell to assemble and sell "subzero" PCs with a little profit in them. But very little: Those lower component prices are available to Dell's competitors, too.
Moreover, Dell has always emphasized a relatively high average selling price of its machines as key to its business model. Amazingly, Dell's been able to keep its average selling price over $2,000, which has assured high profits in a business getting more commoditized every day.
Jumping into the subzero market would inevitably reduce Dell's average selling price sharply, hurting profitability. Michael, I hope you don't do it. (I should be clear that Dell people say they're only thinking about this and are not yet committed to entering the sub-$1,000 market.)
So what happened here? Put simply, Dell screwed up and got what it deserved. No mystery there. Lesson: Run up investors' and analysts' expectations through great performance over time, and when you stub your toe even a little, you get whacked. Happened with Dell's last quarterly earnings report, too, back in November.
I'm still a Dell bull, medium- to long-term, but remember my warning here Jan. 8, when I said I expected Dell to be a first-half stock in 1999. That nasty Y2K cloud may depress operating results until the second quarter of 2000.
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