Earnings news rattles markets

The Nasdaq composite index tumbles after phone maker Motorola warns of a profit shortfall and an influential analyst cuts his revenue projections on Microsoft.

4 min read
The Nasdaq composite index tumbled Thursday after phone maker Motorola warned of a profit shortfall and an influential analyst cut his revenue projections on Microsoft.

The Nasdaq closed down 43.85, or about 2 percent, to 2,752.65, and the Standard & Poor's 500 index dipped 7.91 to 1,343.55. The Dow Jones industrial average lost 45.89 to 10,618.49.

The losses pared some of the Nasdaq's gains Tuesday, when an encouraging speech by Federal Reserve Chairman Alan Greenspan and a presidential campaign-related court ruling sent the index soaring more than 10 percent.

"I think today reality sets back in, realizing that we're still in a tough time from an earnings standpoint," said Dan Cook, a portfolio manager with Ridge Investment Partners.

The CNET tech index fell 59.54 to 2,296.62. Losers beat out winners, with 77 of the 97 stocks in the index falling, 17 rising and three remaining unchanged.

Of the 18 sectors tracked by CNET Investor, PC software makers and Internet e-tailers posted the sharpest drops, falling 4 percent each. Computer aided design and manufacturing companies were the day's only gainers, climbing less than 1 percent.

Motorola warned that it expected earnings of 15 cents per share, compared with an average analyst estimate of 27 cents per share. Motorola also cut its fourth-quarter sales estimates to $10 billion from $10.5 billion. Its shares slipped 6 cents to $17.75.

Motorola's warning came after an announcement yesterday that it had hired contract manufacturer Celestica to build its communication equipment--a cost-cutting move that allowed Motorola to eliminate thousands of jobs at its plants.

"The problem is expectations and getting the cost of your product right," said Wit SoundView analyst Matthew Hoffman, adding optimistically that "this is a healthy industry going into its third straight year of unit volumes being greater than the year before."

National Semiconductor released earnings Thursday. The chipmaker topped analysts' reduced estimates for its second fiscal quarter, reporting a profit of $106.7 million, or 56 cents a share, on sales of $595 million. But the company said it sees weaker sales and margins in the third quarter. National Semiconductor closed down $1.13, or about 6 percent, at $18.88.

Some analysts believe that earnings news is having a diminished effect on the markets compared with the selling stampedes of a few months ago.

"The marketplace is saying that poor earnings have been discounted," said Scott Marcouiller, a market analyst at A.G. Edwards, who mentioned the relative inactivity of Motorola and National Semiconductor shares as a sign that investors are coming to terms with slower earnings growth in the future.

Marcouiller added that other stocks will undoubtedly get hit during earnings preannouncement season, but the aftermath will be more stock specific and most likely will not spill into the broader market.

Microsoft closed down $3.56, or 6 percent, at $53.13 after Goldman Sachs analyst Richard Sherlund cut revenue and earnings estimates, citing sluggish demand for personal computers.

"Rich Sherlund is seen as one of the premier analysts covering Microsoft," Cook said. "He's basically saying, 'Listen, the PC slowdown is real, and even though it's going to be limited on a company as large as Microsoft, it's still going to be an incremental impact.'"

Sherlund cut his revenue estimates by $125 million for the quarter ending in December, projecting that Microsoft will record sales of $6.78 billion to $6.8 billion. He also cut $200 million from his first-quarter 2001 revenue estimates and $150 million from second-quarter 2001 estimates. Sherlund cut his earnings-per-share estimate for the 2001 fiscal year to $1.88 from $1.91.

Other companies did not weather negative earnings news as favorably. Another warning from Internet consulting company Scient sent its shares plunging $1.68, or almost 38 percent, to $2.81. The company said Wednesday it is laying off 460 employees and expects a fourth-quarter loss of 16 cents per share. Analysts polled by First Call/Thomson Financial expected the company to earn 8 cents per share.

Scient was downgraded Thursday by analysts at Prudential Securities, Morgan Stanley Dean Witter, Chase Hambrecht & Quist, Deutsche Banc Alex Brown and First Union Securities.

Intersil Holding fell $6.19, or 21 percent, to $22.81. The chipmaker said fourth-quarter sales would be about 5 percent below analysts' forecasts and first-quarter sales would be little changed from the fourth quarter.

Shares of Yahoo tumbled $2.56, or about 7 percent, to $34.94 after WR Hambrecht analyst Derek Brown downgraded the stock to "neutral," citing weakness in online advertising. The shares traded as low as $31.50, a new 52-week low, compared with a high of $250.06.

This marked the second bad day in a row for Yahoo. Yesterday the company lost 12 percent of its value after Merrill Lynch analyst Henry Blodget cut his revenue estimates, also citing sagging conditions in online advertising. Blodget cut revenue estimates for Yahoo's first two fiscal quarters of 2001 but maintained his full-year expectations for the company.

Chip stocks also fell Thursday. The Philadelphia semiconductor index lost 10.61, or about 2 percent, to 569.48, led by chipmaker Texas Instruments, which dropped $3.44 to $42.88.