Wall Street Beat: Another Week of Tumult for Tech
Thu, November 06, 2008
IDG News Service —
Election week in the U.S. turned out to be another tumultuous time on the stock market for tech companies, with a weak forecast from Cisco Systems and bad news for companies including Advanced Micro Devices, Dell, Nokia, Amazon and consumer electronics retailer Circuit City.
Tech vendor shares plunged along with the rest of the market Wednesday, a day after Barack Obama's historic victory in the presidential election. This was not necessarily a negative reaction to his impending presidency, but rather a general effort to sell at a profit after an exuberant run-up in share values on Election Day. Though Obama has called for better financial oversight by the government, market observers have noted that his one major speech on the topic, at Cooper Union in March, avoided a call for draconian regulations.
However, bad news from tech companies and retailers continues to undermine confidence in IT. Cisco's warning Wednesday of declining demand helped trigger another general slide in the markets Thursday. On a conference call to discuss quarterly earnings, Cisco executives took pains to point out that they have weathered prior recessions and that the company's broad product portfolio makes it better-positioned than competitors in the current downturn. But CEO John Chambers said October orders declined by 9 percent compared to 2007.
Though sales for the quarter were up 8 percent, earnings were flat at US$2.2 billion. "The economic crisis was becoming more apparent on a global basis in October," Chambers said.
Since Cisco is one of the first big U.S. companies to report October results, the announcement was blamed for another bad day on the markets. Cisco shares dropped by $0.41 to close as the Nasdaq, weighted with tech vendors, dropped by 73 points to close at 1,609.
A series of announcements about layoffs and store closures contributed to the sour mood this week.
Circuit City, citing "deteriorating liquidity" and a weakening economy, announced on Monday it would shutter 155 stores in the U.S. It's a major restructuring for the retailer, which up to now operated 770 stores.
In the wake of this bad news for consumer electronics, Nokia Tuesday announced it would lay off about 600 employees. The announcement came three weeks after the company reported that third-quarter earnings plunged 28 percent from last year, to ¬1.09 billion (US$1.5 billion). Mobile-phone sales are seen to be sensitive to a consumer spending slowdown.
AMD Wednesday announced it would cut 500 jobs in an effort to return to profit. This apparently was considered just another sign of weakness by IT investors, who knocked company shares down by $0.38 Thursday, to $3.17. Last month, AMD reported a quarterly loss of $67 million.
