Market Update: Nortel, Dell, H-P the Culprits -- All of Tech Victimized

The red numbers were all over the Street this morning as last night's lousy tech news was wreaking havoc today.

Author:: Eric Gillin
Publish date:: Feb 16, 2001 11:16 AM EST

The red numbers were all over the Street this morning as last night's lousy tech news was wreaking havoc today.

Thank God it's Friday, right? Well, maybe not this Friday.

The tape has turned as bloody as a Lorca play as odd economic data and cautious words from analysts have eliminated most of the gains from yesterday's rally. The

Dow Jones Industrial Average slid 71 to 10,819, while the

Nasdaq Composite Index dropped 114 to 2439.

Inflation data was first and foremost in the minds of traders, since the

Producer Price Index

, which measures the change in wholesale prices, spiked in January. The main number came in at 1.1%, a number so high that many originally thought it was a typo when it was released before the start of trading today. It's close to four times higher than the expected 0.3% growth.

Granted, the PPI numbers tend to fluctuate from month-to-month, but after having rather benign inflationary numbers for quite some time, seeing such a huge PPI increase has many people wondering exactly what's happening in this slowing economy. Is inflation now a problem? Maybe not, but it adds more uncertainty to a market that is already having trouble determining what the rest of 2001 will look like.

January

industrial production

data, meanwhile, showed that output slowed less severely in January than it had in December, but more sharply than economists were expecting. Production fell 0.3% during the month, compared to forecasts that it would be unchanged, while capacity utilization dropped to 80.2% vs. expectations that it would come in at 80.4%. Industrial production slid 0.6% in December.

Networking equipment maker

Nortel Networks

(NT)

warned last night, announcing that it would not see growth improve until late 2001, bucking hopes that the second-half of 2001 would mark a revisit to the good old days of earnings growth. And since Nortel has such a prominent place in the sector, most of tech was destroyed by the news.

Nortel, fittingly, was taken to the woodshed and beaten by the analyst community.

Lehman Brothers

, Credit Suisse First Boston, Goldman Sachs and Merrill Lynch all lowered their estimates on the company. Merrill Analyst Tom Astle took the hardest stance, cutting the company's intermediate-term rating to accumulate from buy.

"We thought

the first quarter would be ugly but this is worse than we thought," Merrill's Astle wrote. "This sector has turned ugly fast. We had sensed sectoral weakness in

the first quarter but we did not expect Nortel to see this much weakness and lack of visibility. Within a three-week period the company has dropped its

first quarter revenue target by 22%."

Part of the problem is that this sector got a

hefty boost yesterday after

Ciena

(CIEN) - Get Report

beat Wall Street estimates for its fiscal first-quarter earnings and, more importantly,

forecast strong growth. Nortel slid 32.5%. Ciena dropped 4.5%. And the entire networking sector blew up. The

American Stock Exchange Networking Index

dropped 9.7%.

The PC-makers were also feeling the pain following last night's warnings from

Hewlett-Packard

(HWP)

and

Dell

(DELL) - Get Report

. Dell

met Wall Street's vastly lowered earnings expectations for its fiscal first quarter ended Jan. 31, but missed revenue estimates and

lowered forecasts for the rest of the year.

Dell managed to

beat revenue forecasts, but it gave no guidance for future earnings or revenues, sparking

visibility fears. It was off 6%.

Cisco

(CSCO) - Get Report

remained in second place among the most actively traded stocks on the Nasdaq, down 6.9% to $28.81. For over a week, the stock has been one of the most actively traded on the index. Last Tuesday the company warned that it saw slowing sales in its future and investors sold it off through Friday. Monday it began to rebound.

Analog Devices

(ADI) - Get Report

met earnings forecasts, but

projected that its second-quarter and full-year earnings will be well below analysts' expectations. And Novell

projected a tough year-over-year comparison for the second quarter.

Corning

(GLW) - Get Report

lowered its revenue estimates and said it will need to control costs in order to meet its first-quarter and full-year earnings estimates. Corning was off 15.5% in early trading.

Schering-Plough

(SGP)

is off 17.2% after it

warned that future earnings are being hurt by a

Food and Drug Administration

probe into the company's manufacturing processes and quality control. Its stock hadn't yet opened for trading.

Sepracor

(SEPR)

, which licenses allergy medication Claritin to Schering, was falling 11.5% on Schering's news.

That's a lot of bad news to absorb.

The consensus on Wall Street is that lasting gains for tech stocks probably won't happen until there is a clear turnaround in the economy and earnings. That means that while there may be plenty of tradable rallies and selloffs, stocks are likely to go nowhere in coming months. Many companies and analysts expect business to pick up in the third quarter of this year. But with

visibility issues cropping up all across the tech universe, that forecast has lost muscle. Some are now saying real earnings growth won't begin again until the fourth quarter.

Sector Watch

Technology was a barren wasteland covered in minds. It's downright deadly out there, with wireless, boxmakers, chipmakers and dot-coms all lower in the wake of some terrible news. And with growth more uncertain than ever before, every sector got crushed.

The

Philadelphia Stock Exchange Semiconductor Index

dropped 5.4%, while the

Philadelphia Stock Exchange Wireless Telecom Sector

fell 6%. The

Philadelphia Stock Exchange Computer Box Maker Sector

was off 4.6%.

But the worst signal out there was the

Morgan Stanley High-Technology 35 Index

, which covers the high-tech companies like

Apple

(AAPL) - Get Report