Technology Stocks Fall into Fall

Octobert 6, 2000
Dell Computer

Compaq Computer




Apple Computer
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T he traditionally harsh October stock market has ravaged technology stocks this year, leading experts to ponder the future of the hi-tech industry. The latest victim, Dell Computer Corp., announced Tuesday that third-quarter revenues would be lower than expected. Dell's stock dropped more than 15% in after-hours trading.

Following this news, other PC manufacturers' stocks fell, including Compaq Computer Corp., Dell competitor Gateway Inc., IBM and Hewlett-Packard. Hit again was Apple Computer Inc., whose stock had already taken a dramatic pummeling late September. Apple saw nearly 50% of its stock value disappear after making a similar warning of lower quarterly revenues this quarter.

One explanation offered by Dell is a weak European demand and sluggish growth in certain sectors. "Through the first two months of the current quarter," a company statement read, "Dell's European demand has been weak and growth in sales to worldwide small business customers has been somewhat short of internal plans."

Dell CEO Michael Dell also suggested that Internet-related sales have also dropped. "We've seen a significant drop-off in the kind of dot-com arena which had exploded on the scene in Q4 [of 1999] and Q1 [of 2000]," he told cnet news.

This e-commerce listlessness could have also affected software powerhouse Oracle, whose stock was also deflated October 4th after posting lower than expected revenues. Company officials hurried to assure investors that the company was on track, and the stock rallied near the market's close to end up just under its opening value.

The entire technology stock market has been on a wild ride in the last two weeks. On the heels of Apple's September 29th freefall came PC chip manufacturer Intel's lambasting after it warned profits would be lower than expected. Intel's announcement saw nearly $80 billion (20%) of its value vanish, and sent the entire technology sector into turmoil.

"Stocks didn't used to go down 40 percent on a 10 percent miss in revenue," Banc of America Securities analyst Tom Courtney told cnet news. "Now they do. The market reacts much more violently today than it did five years ago when a company would miss earnings."

Even with all of the apparent instability, some analysts believe that the tech sector's future is lined with gold. "I believe we're heading for a hell of a bull run in technology," fund manager Duncan Stewart told The Globe and Mail. He says he foresees "blockbuster" fourth quarter revenues -"probably the best-ever for high tech earnings in history."

Even the beleaguered Nasdaq, which is heavily laden with technology stocks, may see an upturn soon. "I do think we are close to the bottom," analyst Greg Nie told The Globe and Mail. He also pointed to Oracle's devaluation as "an example of somewhat emotional selling," and added that this kind of reaction usually appears at the end of a market correction.

For Apple, Intel, Dell and other PC manufacturers, though, the future may not be so rosy. Companies like these which focus mainly on computer sales may not see the turnaround that Oracle enjoyed.

"We have the potential to see some companies differentiate themselves from the pack," analyst Stephen Kahn told The Globe and Mail.

As for the fortunes of the PC manufacturers, all Kahn can say is, "I'm not counting on it."

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Dell Computer Corp.
Compaq Computer Corp
Gateway Inc

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