Tech stocks finish higher; Dow slumps

Tech stocks turn in a strong finish for the week with the help of Qualcomm earnings, while old-economy stocks slump modestly.

5 min read
Tech stocks turned in a strong finish for the week with the help of Qualcomm earnings, while old-economy stocks slumped modestly.

The Nasdaq composite index gained 22.55 to 3,451.57, and the Standard & Poor's 500 index fell 1.63 to 1,426.69.

The Dow Jones industrial average fell 62.56 to 10,817.95, led by General Motors, which lost $2.50 to $57.

The markets turned in a strong week, making gains after a gloomy October when the Nasdaq fell 8 percent. The Nasdaq rose 5 percent for the week, while the Dow gained 2 percent and the S&P climbed 3 percent.

Some observers think the week might signal a strong end-of-year rally.

"The catalyst for a rally is that the markets are oversold," said Brian Rauscher, an investment strategist at Morgan Stanley.

Rauscher believes that investors have already faced most of the bad news, primarily coming from disappointing third-quarter earnings reports throughout October. The reports caused an exodus from the market, possibly opening the chance for a November and December rally.

Betting on the mid caps
Although Rauscher believes the tech sector will perform well over the next two months, he doubts it will ever return to the raging bull market of late 1999 and early 2000. Rauscher is betting on mid-cap tech companies because he believes that tech giants cannot sustain big incremental gains for much longer. He discounted opportunities from small-cap Internet companies and start-ups that have not yet turned a profit.

"Once (negative) sentiment washes out, people are going to go back to the companies that have the best fundamentals," he said.

Others are more cautious, warning that volatility will be the only constant in the next few months.

"We've got some more traveling to do on the downside," said Thomas McManus, an equity portfolio strategist at Banc of America Securities. "It's not straight up from here...There's a lot of negative news still out there."

McManus believes that the Federal Reserve will not lower interest rates until February 2001 or later. The Fed has raised interest rates six times since June 1999 to cool the economy, and it will not likely ease off until it's convinced that risks of inflation are low.

McManus believes the market correction that hammered tech stocks starting in April was not a onetime hit and that the markets may be gearing up for another correction. He thinks more companies will bottom out with new lows in upcoming months.

"It's just been too easy, too convenient and too gentle," he said. "Given the extent of the speculation (and) given the extent of the euphoria, this just seems to be a mild correction."

The bright side
On the positive side: Qualcomm reported Thursday that fourth-quarter earnings rose 10 percent, exceeding analyst expectations. Pro forma earnings for the period, excluding nonrecurring items, were $200.8 million, or 25 cents per share, on revenues of $635.4 million. That compares with pro forma earnings of $182.9 million, or 24 cents per share, on revenues of $716.3 million for the same period a year ago.

Analysts expected Qualcomm to earn 24 cents per share, according to a survey by First Call/Thomson Financial. Shares of the maker of cellular telephone technology rose $7.69, or 12 percent, to $70.50.

Other large-cap tech stocks followed Qualcomm's lead. Oracle rose 75 cents to $30.31; WorldCom climbed 44 cents to $18; and Cisco Systems climbed $1 to $56.75.

The Labor Department said the nation's jobless rate held steady at a three-decade low of 3.9 percent in October. The jobless rate was unchanged from September, surprising analysts who had been predicting a slight uptick in the unemployment rate to reflect a slowing economy.

The balance of economic data released over the past few weeks indicates a slowing economy. That makes it more likely the Federal Reserve will not raise interest rates.

However, some believe the report will urge the Fed to keep its vigilance over the economy.

"Domestic demand needs to slow further and the unemployment rate must tick up before the Fed would consider easing" interest rates, economist Gerald Cohen at Merrill Lynch wrote in a report Friday.

The CNET tech index inched down 14.61 to 2,728.16. Losers edged out winners, with 52 of the 97 stocks in the index falling, 44 rising and one remaining unchanged.

Of the 18 sectors tracked by CNET Investor, server hardware makers were the day's largest gainers, climbing 3 percent. Internet e-tailers posted the sharpest drops, falling 4 percent.

The initial public offering of Optical Communication Products was the biggest percentage gainer on the Nasdaq. Shares of the maker of components for fiber-optic networks rose $6.88, or nearly 63 percent, to $17.88.

Other tech stocks down
The earnings outlook was not so fortunate for other tech companies.

Priceline said Thursday it laid off 87 employees and that its chief financial officer will leave. The announcement came as the company reported that third-quarter losses narrowed, meeting analysts' lowered expectations. Shares of the name-your-own-price e-tailer fell $2.13, or 31 percent, to $4.72.

Kulicke & Soffa Industries said Thursday that fiscal first-quarter revenue will likely be lower than expected because of customer order deferrals. Shares of the semiconductor equipment maker fell $3.13, or 21 percent, to $11.75.

NETsilicon shares fell $5.88, or about 42 percent, to $8.25--the largest percentage loser on the Nasdaq. The maker of chip devices and software for printers, fax machines and copiers said it will have a loss in its fiscal fourth quarter because of declining sales in the office-imaging industry.

The Waltham, Mass.-based company said it expects office-imaging revenue to fall 30 percent in the quarter ending Jan. 31 from the quarter ended Oct. 28. NETsilicon was expected to earn 5 cents in the fourth quarter, the average estimate of three analysts surveyed by First Call/Thomson Financial.

Chip stocks rose higher. The Philadelphia semiconductor index rose 7.89 to 740.61 led by Rambus, which gained $14.31, or 28 percent, to $64.94.

Analyst Mark Edelstone at Morgan Stanley Dean Witter reiterated his "strong buy" rating of Rambus. The chip design company said Wednesday that it signed its largest license agreement ever with Samsung Electronics.

Rambus fell as much as 32 percent Tuesday on concerns that Intel is drifting away from promoting Rambus' memory technology and will begin to rapidly pair Intel processors next year with a competing and less expensive memory technology called double data rate DRAM.

Sprint warned that its earnings for 2000 and 2001 could fall short of expectations. The long-distance company said it expected to earn between $1.80 and $1.90 per share for the year. Analysts surveyed by First Call expected the company to earn $1.90 a share in 2000. Sprint rose $1.38 to $23.88.

Investors continued to shred shares of PSINet, which fell 59 cents, or 20 percent, to $2.34. The Internet service provider's shares also fell 55 percent Thursday after the company said fourth-quarter results will be lower than forecast. In addition, president and chief operating officer Harold Wills resigned.