Tech Stocks Slump

Subpar reports from Dell and BEA Systems take down the Nasdaq.
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Updated from 11:01 a.m. EDT

Tech stocks continued to decline at midday Friday following coolly received news from

Dell

(DELL) - Get Report

and

BEA Systems

(BEAS)

as investors puzzled over the latest data on inflationary trends in consumer prices.

The

Nasdaq Composite

dropped 24 points, or 1.3%, to 1902. The

Dow Jones Industrial Average

was off 24 points to 9986, and the

S&P 500

lost 4 points to 1092. The 10-year Treasury note traded up about 14/32 to yield 4.80%, while the dollar remained higher against the yen and euro.

Overseas stocks were broadly lower, with London's FTSE 100 down 0.1% to 4447 and Germany's Xetra DAX off 0.2% to 3819. In Asia, Japan's Nikkei rose 0.2% to 10,850, while Hong Kong's Hang Seng fell 1.1% to 11,279.

Dell was down about 3.4% as investors couldn't muster any enthusiasm for its first quarter, in which earnings jumped 22% and revenue beat estimates. Dell's stock is one of the few major technology shares still in the green for 2004, so the computer maker's inability to beat estimates on the bottom line or significantly raise guidance was treated harshly.

Also, BEA Systems tumbled 21.6% despite having posted a 3.6% jump in profits after Thursday's closing bell. Investors were troubled by a decline in software sales, and a host of analysts cut their ratings on the business software maker Friday morning.

"These are two strong players, and now both of them are missing and lowering guidance," said Richard Williams, equity strategist at Garban Institutional Equities. "This was the quarter that we were supposed to see the big IT spending boom, and it really starts getting to the point where you have to ask, where is this tech boom? The government has shown us great numbers, but we haven't seen evidence of it when you look at all the big companies."

"If they're not growing meaningfully, something is wrong," he added. "And if you take the currency factor out of their most recent reports, you see that they're only growing in low single digits."

The Amex Network Index was recently down 2.3%, the CBOE Software Index gave up 2.3% and the CBOE Hardware Index lost 2%.

On the economic front, the consumer price index posted its lowest reading in four months, rising 0.2% in April. That data could temper the recent concerns in the market about inflation, but excluding food and energy prices, the core index came in higher, at 0.3%. Paul Mendelsohn, chief market strategist at Windham Financial, said he expected the core CPI reading to come in where it did, but he was baffled by the fact that it was higher than the overall reading given the recent uptick in gasoline prices.

"I think people, like myself, are just going to scratch their heads and say this doesn't make any sense, and I would suspect the figure will either be revised next month, or the next month is going to make up for the higher gas and energy prices that are not flowing through to this report," he said. "The market is looking six to eight months forward as it always does, and I'm not sure it likes what it sees out there."

"Given where we are on gasoline inventories at this point in time, I'm really concerned as to whether we have enough to get through the summer at these levels of demand, particularly if there's a shock out there," he added.

In other economic news, industrial production jumped 0.8% in April, beating Wall Street's consensus estimate of 0.5%, after falling the month before by a revised 0.1%. Factories operated at 76.9% of capacity, according to the

Federal Reserve

, up from last month's 76.5%.

Growth cooled in business inventories in March, from 0.8% to 0.7%, but the figure was higher than the expected 0.4% increase. Also, the University of Michigan said the preliminary reading of its consumer sentiment index for May stayed flat at 94.2 after economists predicted it would rise to 96.

In other corporate news, several chip stocks were moving higher after Schwab Soundview was generally enthusiastic about the industry in a sector initiation Friday. The research shop said fears of overcapacity look ill-founded given expected growth in capital spending, and started equipment giant

Applied Materials

(AMAT) - Get Report

and foundry giant

Taiwan Semi

(TSM) - Get Report

at outperform. Applied Materials was recently up 27 cents, or 1.4%, to $19.18, while Taiwan Semi was up a penny to $9.67.

Thursday's big PPI number did little to harm stocks. The Dow Jones Industrial Average fell 34 points to 10,011, while the Nasdaq Composite rose fractionally to 1926. Volume was light, with about 1.4 billion shares trading on the

New York Stock Exchange

and 1.5 billion trading on the Nasdaq Stock Market.