jeffreynewman.com: website for Jeffrey L. Newman

From The Newsroom

Gates Gets Hassled, But Industry Tanks
Mood Swings in Tech-Ville

By Jeffrey L. Newman
ABCNEWS.com from TheStreet.com

N E W Y O R K, Dec. 12 � The Silicon Valley crowd was busy doing the conga line through the office Thursday afternoon�ol' Bill Gates was getting his due in court. But the good times stopped when they got back to the cubicles and saw their companies' stocks were in free-fall.
With the exception of Netscape, the primary beneficiary from Thursday's ruling that restricted Microsoft's browsers strategies, the tech stocks have been in a nasty downdraft this week.

Cisco Systems' stock over the past three days. (ABCNEWS.com)

The downturn can be traced to a weaker than expected earnings report from Oracle, which the software giant attributed in large part to Asian economic troubles. And what's bad for Oracle is, according to Wall Street thinking, is bad for all tech stocks.
Sure, there has been a spotty rebound among a smattering of tech stocks today� Sun Microsystems, Compaq and Oracle all were up in afternoon trading�overall weakness in the tech sector and the lingering fallout from the trouble in Asia, will probably continue well into the new year.

The trend of IBM stock is downward, too. (Reuters)

     Among the hardest hit this afternoon were Dell, Cisco, Intel, Applied Materials, IBM, Microsoft, and Seagate.

Winter Chill
"We will continue to see turbulence into mid-January," says Peter Rogers, director of technology research at Volpe Brown Whelan & Co.
     Before the Asian crisis, the technology sector had been growing at about 25 percent in the last two to three years. That rate has since fallen to the mid-teens, which many say is a much more reasonable growth rate.
     Many analysts say the tech sector is a victim of several forces at work.
     First, the Asian situation seems to be worse, and no one knows where it's going or the impact it will ultimately have on businesses in Asia, Europe and the United States. While some companies have only a small exposure to Asia, they may do business with European companies that have a large interest in Asia. And to the extent that those European companies reduce business, tech companies here could be hurt further.
     "They're all inter-linked," says Rogers. "The market first reacted to that with denial, now they're reacting with fear."

Oracle's stock was up and down. (ABCNEWS.com)

A Dour Drumbeat
Second, earnings are disappointing for many companies. Along with the Asian effect, heavy competition in the $1,000 PC market has hurt profit margins. However, analysts say that in mid-to-late January, investors will start to hear reports from tech companies who are doing well, creating a counter reaction.
Third, many analysts say Oracle's news earlier this week was the final straw on the camel's back for portfolio managers, many of whom are looking to dump out-of-favor stocks before the end of the year. Many managers used this week to rid clients' portfolios of tech holdings, and more of that is expected between now and Christmas.
"We will definitely see more of a backlash from portfolio mangers before the end of year, then maybe things will be OK," says George Koo, an analyst with Burnham Securities.

abcnews.com index editorial index