Updated from 4:07 p.m. EDTDeficiency in a heretofore obscure revenue line item in Microsoft's ( MSFT) earnings kept the pressure on stocks Friday. The Dow Jones Industrial Average fell almost 31 points, or 0.3%, to 9582.46, while the Nasdaq shed about 20 points, or 1.1%, to 1865.59. The S&P 500 lost 5 points, or 0.5%, to 1028.91. Treasuries were sharply higher, with the 10-year up 22/32 and its yield at 4.23%. "This decline is to be expected, after the terrific run-up we've had in equity prices year to date," said John Davidson, president of PartnerRe Asset Management. "Embedded in prices is a lot of good news this quarter, but until we get further confirmation of recovery in the economy, the markets will trade in a range, signaling the full valuation of stocks." The major averages closed lower for the week, with the Dow down 1.4%, the S&P lower by 1% and the Nasdaq losing 2.4%. About 1.4 billion shares traded hands at the New York Stock Exchange, while 1.9 billion shares were exchanged at the Nasdaq. Decliners were outpacing advancers by a 3-to-2 margin on both exchanges. More than 300 companies in the S&P 500 have reported results so far. Earnings have risen 19.4% on average, the fastest pace since the second quarter of 2000, according to Thomson First Call.
posted stronger-than-expected earnings and revenue Thursday and said second-quarter and full-year results could come in better than expected. But the world's largest software maker reported a larger-than-expected decline in deferred subscription revenue, as large companies spent less than what was forecast in the quarter. The quarterly revenue growth was also the smallest in more than three years. Microsoft lost $2.28, or 7.9%, to $26.63. Dow component Wal-Mart ( WMT) was dragging the industrial index lower after reports from federal law enforcement agents that the mega-retailer had knowledge of illegal immigrants working for its cleaning contractors, according to the Associated Press. Shares fell 85 cents, or 1.5%, to $57.85. Also in earnings news, computer maker Gateway ( GTW) said late Thursday that it had a wider quarterly loss and forecast a bigger loss than analysts were expecting in the next period. Revenue was also weaker, albeit above expectations. Shares dropped $1.48, or 24.3%, to $4.62. Meanwhile, JDS Uniphase ( JDSU) was also pressuring tech after the fiber-optic component maker said revenue fell from a year earlier, missing Wall Street estimates. But the company managed to post a narrower-than-expected loss in the quarter. JDS shares lost 23 cents, or 6.1%, to $3.55. Vitesse Semiconductor ( VTSS) reported a loss following a profit in the same year-ago period but forecast a narrower loss than analysts were expecting for the first quarter. Vitesse ended lower by 26 cents, or 3.9%, at $6.40. Elsewhere, Scientific-Atlanta ( SFA), the No. 2 maker of cable TV boxes in the U.S., posted a rise in first-quarter profit, but revenue fell short of analysts' estimates, while sales of its high-end set-top boxes disappointed investors. Shares of the company fell $6.04, or 17.2%, to $28.99. Off Wall Street, the trial of former Credit Suisse First Boston investment banker Frank Quattrone ended with the jury unable to reach a verdict. Prosecutors have yet to decide whether to try Quattrone again on charges he obstructed a Justice Department investigation of the bank's IPO allocation practices.
In analyst actions, Lucent ( LU) was downgraded at Deutsche Securities to sell from hold. The stock dropped 17 cents, or 6%, to $2.66. In corporate deals, phone carriers AT&T ( T) and BellSouth ( BLS) are again discussing a potential merger. According to a Wall Street Journal article, regional provider BellSouth would acquire AT&T for its long-distance services and would operate under the AT&T name. AT&T gained 72 cents, or 3.8%, to $19.88, while BellSouth fell 16 cents, or 0.6%, to $25.76. Also in M&A activity, Deutsche Bank ( DB) is said to be close to purchasing General Motors' ( GM) GMAC Commercial Mortgage unit in a deal worth as much as $2 billion, according to The New York Post. GM shed 29 cents, or 0.7%, to $41.78, while Deutsche Bank shares fell 47 cents, or 0.7%, to $64.84. UTStarcom ( UTSI) lost $2.70, or 7.9%, to $31.36. The Chinese maker of cordless-phone systems said earnings in the current quarter will surpass last period's results on stronger revenue. But Lehman Brothers noted that the outlook failed to meet the firm's expectations and downgraded the stock to equal-weight from overweight. Another stock in focus was telecom-equipment maker Nortel ( NT), which said it will restate its financial results for the past three years, narrowing previously-announced losses. The company reported an unexpected third-quarter profit late Thursday. Nortel was lost 30 cents, or 6.8%, to $4.14. European markets were lower, with London's FTSE 100 down fractionally at 4239 and Germany's Xetra DAX off 1.3% to 3452. In Asia, Japan's Nikkei closed flat at 10,335, while Hong Kong's Hang Seng was unchanged at 11,736. The U.S. dollar strengthened slightly against the euro and the yen. Crude oil futures rose in London. On Thursday, the Dow rose 14.9 points to 9613.1, while the Nasdaq fell 12.6 points to 1885.5. The S&P 500 added 3.4 points to 1033.8.