Want CNET to notify you of price drops and the latest stories?

Markets bruised after hectic week of warnings

The U.S markets receive a major drubbing after an Apple Computer warning rekindles investor fears over lower corporate profits for the upcoming earnings season.

4 min read
The U.S markets received a major drubbing after an Apple Computer warning rekindled investor fears over lower corporate profits for the upcoming earnings season.

The Nasdaq composite index fell 105.65, or nearly 3 percent, to 3,672.67, and the Standard & Poor's 500 index dropped 21.78 to 1,436.51.

The Dow Jones industrial average fell 173.14, or almost 2 percent, to close at 10,650.92.

The Nasdaq closed 3 percent lower from last week, while the Dow lost nearly 2 percent. The S&P 500 dipped nearly 1 percent lower.

Optimism drained from the markets as analysts, even veteran bulls, swiftly pulled back from computer hardware companies. A raft of downgrades on Apple spilled into the broader computing sector and throughout the tech industry.

"This is a situation when the market is in overreactive mode," said Brian Belski, a market strategist at U.S. Bancorp Piper Jaffray. "Investors don't want to make significant tech bets given the high-profile (earnings) news that's coming out."

According to CNBC, the Nasdaq's performance this month was its worst September showing in about 20 years. The Nasdaq dropped nearly 13 percent for the month.

Shares of Apple plummeted following a grim profit warning yesterday by the computing giant that said sales in its fourth quarter will fall "substantially below expectations" because of slower sales in September. Apple sales traditionally soar throughout the fall because of the company's popularity among college students and other back-to-school shoppers.

Learn more about the recent market turmoil this week on
CNET News.com TV

Saturday and Sunday, September 30 and October 1, 4 to 5 p.m. ET on CNBC

Shares of the Cupertino, Calif.-based company fell $27.75, or nearly 52 percent, to $25.75. Volume topped 132 million shares, more than 26 times the stock's average daily volume of about 5 million shares. Analysts at nearly a dozen financial institutions downgraded Apple and penned scathing reports on the company.

Large cap stocks followed Apple's downward spiral. At the end of regular trading, Intel dropped $2.88 to $41.56. According to two PC makers, the chip giant has delayed delivery of its long-awaited Pentium 4 processor until around Halloween.

Cisco Systems slipped $4.19 to $55.25; Microsoft lost $1 to $60.31; and Sun Microsystems fell $6.88 to $116.75.

The CNET tech index lost 101.15 to close at 2,833.13. Losers soundly thumped winners, with 76 of the 97 stocks in the index falling, 19 rising and two remaining unchanged.

All of the 18 sectors tracked by CNET Investor bled losses. PC hardware makers posted the sharpest drops, falling nearly 8 percent, followed by semiconductor makers, which lost 5 percent. Computer services providers brought up the rear, losing 0.33 percent.

Investors ruled other computer makers guilty by association. Hewlett-Packard fell $10 to $96.88; IBM slipped 25 cents to $114.75; Gateway closed at $46.75, down $9.15 or 16 percent; Dell Computer dipped $2.38 to $31.06; and Compaq Computer fell $3.28, or nearly 11 percent, to $27.52.

Chip stocks also fell. The Philadelphia semiconductor index fell 49.97, or nearly 6 percent, to 851.57 led by chip equipment maker KLA-Tencor, which lost $4.13, or 9 percent, to $41.19.

Warnings also wracked the old economy today, as UAL notified investors that it expects a third-quarter loss and probably even a fourth-quarter loss. Analysts polled by First Call/Thomson Financial had been expecting a gain of 97 cents per share in the third quarter and earnings of 63 cents per share in the fourth quarter for UAL, the parent company for United Airlines.

United blamed the losses on a pilot strike this summer, which grounded hundreds of planes and further tarnished the airline's reputation for on-time flights and customer service. UAL stock dropped 4.5 percent to $42. Other large airlines, including Delta, were also stung.

On the bright side, Research in Motion (RIM), the maker of the Blackberry email pager, rose $15.13, or 18 percent, to $98.56 after strong earnings news.

For the quarter ended Aug. 31, RIM lost $1.6 million, or 2 cents per share, on revenue of $42.5 million. In the year-ago quarter, RIM earned $2.3 million on sales of $19.3 million. Analysts had been expecting RIM to lose 3 cents per share, according to First Call.

Despite that good news, investors seemed to be in an angry mood after several weeks of earnings warnings.

Like many analysts who have inked scathing reports in recent weeks after companies issued revenue warnings, Bear Stearns analyst Andrew Neff took the opportunity this morning to chastise Apple, Compaq and other companies for their failure to communicate realistic earnings numbers sooner in the quarter.

"While there is no new guidance from Compaq or any other company, we would like to see good news and positive developments and not just explanations for the various blowups," Neff wrote. "From an industry perspective, smoke can sometimes really mean fire."