HP fell 10-5/8 points to close at 78-3/8 following its announcement Wednesday that an unexpected slowdown in order demand would trim profits in the third quarter. The report, coupled an earlier announcement by Motorola that profits were off 32 percent for the second quarter, started a selloff of technology stocks throughout the market this week.
The Nasdaq stock index plummeted 45.68 points today, continuing a downward trend that began after it set a record high of 1,249.15 on June 5. Since then, the index has fallen more than 140 points as the industry has cited slackening demand for PCs.
"There are times when the herd is looking for any piece of bad news to confirm their fears," said Kevin Landis, portfolio manager for Interactive Investments. "Today, HP provided the excuse to panic."
Landis believes that everyone has been waiting for a downturn in technology stocks and that slowing growth, no matter how healthy the industry, can scare people. He does, however, acknowledge that when a big company misses its numbers, there may be signs of a larger trend.
HP announced Wednesday that it was shutting down its disk-drive division and would take a $150 million pre-tax charge against earnings as a result. The company also said it is facing a slowdown in orders throughout its product line and said order growth would be significantly below its second-quarter increase of 24 percent.
"The problem here is that even though we were talking about potential order weakness, HP's slowdown was more broad-based than we expected," Steve Milunovich, an analyst with investment firm Morgan Stanley. The slowdown has even affected Hewlett-Packard's PCs and printers, the staples of its business.
But analysts are not certain whether the drop is the sign of a larger trend or the result of the retailers over-ordering in previous quarters. "There is some risk that there is a slowdown in sales, but we feel it's a supply-side problem," Milunovich says.
He and other analysts say the results for the two companies don't necessarily indicate a slowdown in the computer market as a whole. Milunovich believes that some of the slowdown is the result of a seasonal fluctuation related to European orders, while the currency markets have also had a negative impact on the earnings of multinational corporations.
Because such external factors are to blame for much of the economy, Landis remains optimistic. "In general, people will probably look back at today as a really nice buying opportunity," he said.