Markets dip after Greenspan talk
Techs slump in midday trading amid a new rash of profit warnings and a gloomy report on the economy's outlook from Federal Reserve Chairman Alan Greenspan.
The Nasdaq composite index fell 39.52 points to 2,168.30, and the Dow Jones industrial average dropped 99.89 points to 10,536.99.
Greenspan told Congress on Wednesday that the slowdown hitting the U.S. economy "has yet to run its full course." But he also hinted it hasn't slipped enough to prompt another interest-rate cut, saying the Fed has responded to the problem. The Fed cut rates twice last month.
Greenspan said the slowdown in spending in the tech-manufacturing sector was predictable, given the remarkable surge in capacity over the past year. But the speed of the problem surprised many businesses, Greenspan said, multiplying the problem.
"Because the extent of the slowdown was not anticipated by businesses, it induced some backup in inventories, despite the more advanced just-in-time technologies that have in recent years enabled firms to adjust production levels more rapidly to changes in demand," he said.
But those same technologies have also allowed production change to proceed more quickly, he noted.
"A couple of decades ago, inventory data would not have been available to most firms until weeks had elapsed, delaying a response and, hence, eventually requiring even deeper cuts in production," he said.
While the rapid adjustments are "generally beneficial," he said, "human nature remains unaltered. We respond to a heightened pace of change and its associated uncertainty in the same way we always have. We withdraw from action, postpone decisions, and generally hunker down until a renewed, more comprehensible basis for acting emerges. In its extreme manifestation, many economic decision makers not only become risk-averse but attempt to disengage from all risk."
The slowdown Greenspan was talking about continued to ding tech firms at midday. Shares of Elantec--a maker of high-performance analog integrated circuits for the video, optical storage, communication and power management markets--were off $9.34 to $21.34, after the company said it would miss estimates for its second quarter.
Quarterly earnings should be between 20 cents and 22 cents a share, below the 38 cents per share analysts surveyed by First Call had expected. Elantec blamed the economy and weak demand in the PC sector for the shortfall.
A profit warning from Altera has analysts concerned that competitor Xilinx may do the same next week. Altera said Tuesday that it expects first-quarter sales to drop 20 percent from the $368 million posted in the fourth quarter. Altera shares slipped 38 cents to $23, while Xilinx fell $4.56 to $37.31.
Shares of Avanex plunged $3.94, or 16 percent, to $20 after it warned it would miss sales and earnings estimates for the third quarter. Analysts blamed WorldCom, Avanex's largest customer, and cut ratings on that company. WorldCom stock slid $1.13 to $16.56 on the news.
Shares of JDS Uniphase continued to dip, falling $2.44 to $25.38 two days after the company announced it would lay off 3,000 workers amid slowing growth.
Among other leading tech issues: Cisco dropped 19 cents to $23.81, Microsoft fell 38 cents to $59, and Oracle lost $3.13 to $20.06.
Yahoo slipped $2.13 to $23.63, AOL Time Warner dropped $1.19 to $43.51, and eBay was down 63 cents to $41.50. IBM fell $1.98 to $100.61, and Intel lost 6 cents to $28.94.
Staff and Reuters contributed to this report.