The high-tech sector took another beating because of the continued perception
that the rapid rate of growth seen not too long ago was winding down amid
dwindling venture capital and the absence of an interest rate cut that would
have made borrowing at least somewhat easier.
Investors were clearly disappointed at the Fed's refusal to cut rates and
seemed to find little encouragement either in the possibility that the Fed
would make the desired cuts next month or in other helpful signs such as the
falling price of oil. Reports from the floors indicated that no one was in
the mood to look around for possible bargains as Christmas
loomed ever nearer.
"No one wants to try to catch the falling safe," quipped a Merrill Lynch
trader on CNBC.
The Dow fell 265.40 points to 10,318.90 on volume of 1.42 billion shares.
Nasdaq lost 179.93 points to 2,332.78 on heavy volume of 2.8 billion shares.
Cisco led Nasdaq's most-active list with a 5 1/4 point fall to 36 ½ on
volume of 169 million shares. Microsoft set a new 52-week low with a loss of
3 15/16 to 41 1/2. Foundry Networks, which makes Internet networking products,
lost a whopping 17 5/8 to 13 after being downgraded by six different
analysts because of disappointing earnings.
One of the few volume leaders on the upside was Sun Microsystems, which
gained 1/2 to 27 7/16, although the slight rebound came amidst what has been a
steady December decline.
Micron fell 4 15/16 to 29 13/16 on the New York Stock Exchange before releasing earnings that missed analysts' estimates.
The chip manufacturer blamed its relatively disappointing first quarter on
"lower average selling prices and higher costs for semiconductor memory
products purchased under joint venture supply arrangements."
Credit Suisse First Boston said in its Tech Daily newsletter on Tuesday
that the entire world semiconductor industry was being bogged down by a
combination of tighter capital markets and an inventory correction that
would spill over to companies that produce the equipment used in
semiconductor manufacturing.
"We have been cautioning investors that the semiconductor industry was in
the midst of an inventory correction the depth and breadth of which was
perhaps more severe than most realized," CSFB said in an article written by
analyst John Pitzer. "The impact of this inventory correction would be a
dramatic reduction in capital budgets for capacity addition in 2001,
especially 1H01," the first half of 2001.
The Philadelphia Semiconductor Index lost 6.5 percent to 539.57.
A number of biotech and other medical stocks benefited from the exodus of
funds from the tech sector. Merck picked up 1 7/8 to 93 3/8 while Novartis
closed up 9/16 at 43 1/4.
Trading on AT&T was halted on the NYSE during the session following news
that the company was cutting its annual dividend and would likely miss
fourth-quarter estimates. TRW also issued softer earnings expectations,
although it lost only 1/8, and Palm reported a 58 percent growth in revenues
for its second quarter; however, traders sent shares in the hand-held
organizers company down 5 1/2 to 38 1/8 after it was announced that Palm was
buying WeSync, a wireless service vendor, for $40 million to $45 million.
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