High-technology stocks continued their roller-coaster ride today, causing the Dow Jones industrial average to plummet by more than 35 points and the Nasdaq composite to fall more than 15.
Leading the decliners was Netscape Communications, which plunged 6-1/2 points to 46-1/2. Iomega was down 2-5/8 to 19-7/8, and Sun Microsystems fell 2-3/8 to 52-5/8. Microsoft shares dropped by 1-7/32 points to finish at 119-3/4, even though the company was expected to--and did in fact--post a favorable earnings report after close of market.
The Dow Jones Industrial Average ended the day with a loss of 35.88 to close at 5390.94, after falling as much as 50 points earlier. The Nasdaq Composite Index dropped 16.29 to 1081.39.
Wall Street analysts blamed the drop at least in part on a front-page article in The New York Times, which stated that Microsoft is preparing to update its Windows 95 operating system for release this summer that may further undercut Netscape's narrowing technological lead in Internet software.
Details of the update, code-named Nashville, have already been widely reported by CNET and other news organizations. But the story underscored the fact that Internet software providers have less and less to differentiate them, a fact expected to lead to ever fiercer competition and narrower profit margins, analysts said. And that's scaring some investors out of high-tech stocks.
"Investors are becoming more concerned about the quality of earnings. They're looking for stocks with a lower price-to-earnings ratio," said Dick Gunter, a senior vice president with Wedbush Morgan Securities. "They have to be concerned with earnings because at this point the economy is not quite as good as some people had hoped it would be."
Several companies have announced lower-than-expected earnings, including Hewlett-Packard and Digital Equipment. Some analysts said investors are bailing out of high-tech stocks simply because the market, always a volatile one, has simply become too unpredictable.
While high-tech stocks did stage a brief rally after last week's announcement of strong earnings from Intel, market observers are expecting a rough ride for the remainder of this week. Despite some bright spots, such as Microsoft's anticipated earnings statement, IBM is expected to announce disappointing second-quarter earnings on Thursday.
However, one area of optimism is the digital video disc market, where growth is expected to create a large windfall for the semiconductor industry, which will supply chips for such DVD products as video players and optical drives. Research group Dataquest predicts that the semiconductor business exceed $3.6 billion by the year 2000, a huge increase over the anticipated $80 million forecast for this year.