Market rebounds after Compaq hit

Compaq shares plunge when the market opens, temporarily dragging other stocks down, but the Dow and Nasdaq rebound in midday trading.

2 min read
Compaq Computer shares dropped at the market open today, temporarily dragging down other hardware stocks, but the Dow rebounded with a bang.

The Dow Jones industrial average gained more than 100 points at midday, shaking off the effects of the Compaq warning. At midday, the Dow was up 123.76 points at 10,297.6, putting it in record territory. The tech-heavy Nasdaq battled its way out of negative territory and was up 6.83 points to 2599.88.

Shares of the Houston, Texas-based PC maker fell 23 percent in early trading.

"Compaq?s shortfall is not representative of the health of the industry," said Ashok Kumar, an analyst with US Bancorp Piper Jaffray. "We estimate that PC unit shipments are down sequentially over 20 percent for Compaq, vs. a 15 percent decline for the broad market. Dell is expected to be up 9 percent and Gateway about flat sequentially.

"Intel, the true barometer of the market, is expected to be up sequentially in units, albeit some of the growth is the result of share gains," Jaffray said. "The PC market is in a 'Goldilocks' state-?neither hot nor a disaster, just lukewarm."

At Friday's market close, Compaq warned its first-quarter earnings would be about 15 cents a share with an estimated revenue of $9.4 billion. Analysts polled by First Call projected the company would earn 31 cents a share.

Compaq blamed its earnings shortfall on lower-than-anticipated market demand and increased competitive pricing in the commercial PC industry.

"While market conditions will continue to be competitive, we fully intend to expand our business and grow market share profitably in 1999," Compaq CEO Eckhard Pfeiffer said in a statement. The company said it plans to roll out its enterprise strategy in this week's Innovate 99.

Other hardware stocks were in the red on Compaq's news. Even with IBM's announcement that it will join online multimedia company RealNetworks in a move to help create a universal standard for sending music over the Internet, the PC maker's shares dropped 4.68 to 181.62 in early trading.

Meanwhile, the news on Compaq shook world markets into negative territory. In early trading, the United Kingdom's FTSE-100 Index fell 43.9 points, while Hong Kong's Hang Seng and Japan's Nikkei Index both closed lower, down 1.42 percent and 2.07 percent, respectively.

Compaq is scheduled to report earnings April 21.

Reuters contributed to this report.