Storm Clouds of Slowing Economy Break on Big Tech

When rains it pours, and that was never truer for technology companies than Thursday, when the thunderheads of a slowing economy burst on high-tech giants like Microsoft Corp., Motorola Inc. and Intel Corp. The day got off to a dark start as Motorola, the world"s No. 2 mobile telephone maker, slashed its fourth-quarter profit estimates by more than 40 percent, driving its stock to a nine-year low at one point.

Things ended with an after-market lightning strike from Intel Corp., the biggest maker of the microprocessors that power personal computers. Intel warned that fourth quarter revenue growth would flatline.

In between those announcements, software titan Microsoft was humbled by a report from a single analyst -- Goldman Sachs"s Rick Sherlund, considered one of Wall Street"s keenest experts on the company. Sherlund"s lowering of Microsoft"s fiscal 2001 earnings per share estimate to $1.88 from $1.91 shaved 6.3 percent off the stock price. It also whacked $20 billion from its market capitalization.

Internet portal Yahoo! Inc. also fell to a fresh year-low of $34-15/16, done in by an analyst"s concern that the online advertising that makes up 80 percent of Yahoo revenues would not pick up anytime soon.

The technology-laden Nasdaq Composite lost 43.84 points, or 1.57 percent, the second day of declines following a 3.2 percent drop on Wednesday after Apple Computer Corp."s warning that it would lose money for the first time in three years.

NEW ECONOMY BLUES

The grim earnings warnings largely blame a slowing of the giant global economic wheels rather than costly missteps by companies themselves. "What we believe is happening is a worldwide economic slowdown," Intel Chief Financial Officer Andy Bryant told Reuters in a telephone interview in Francisco. "It"s every place in the world and it"s nearly every product we sell," Bryant said.

That echoed the bad news by Motorola, which said sales to automotive, network, computer semiconductor and wireless customers were all sluggish. "I think they"re having a tough time on many fronts," said Stephen Gauthier, fund manager for the National Bank Global Technologies Fund, which owns stock of Motorola competitors Nokia Corp. and Ericsson.

"There"s a slowdown for sure in spending from telecom companies," Gauthier said. "The negative impact is a lot worse for companies that are in two, three, four, five different fields. They have competition on all sides and they"re fighting against players that are more focused than they are." Blaming lackluster performance on macroeconomic issues may actually have helped soften blows to the stocks.

Motorola, down more than 10 percent at one point on Thursday, managed to recover to end down just 1/16, 0.35 percent.

"What is interesting is a way a lot of the stocks haven"t really been hit that hard," said Scott McAdams, president of Seattle-based brokerage McAdams Wright Ragen. "Motorola ended down what, 1/16. Apple was down 2 points yesterday and up a little or unchanged today." "The market seems to be telling me that most of the current bad news, and probably a soft landing, are both factored into these current tech stock prices," McAdams said.

A soft landing would see growth slow without having the economy crash into recession--the hard landing that could lie ahead.

"If you get a hard landing, then my guess is there"s more to come. That"s really what"s at stake, what kind of landing we get," McAdams said.

NO HAPPY HOLIDAYS

Holiday shopping is not likely to come to the rescue for many of the companies. Computer sales are down from last year while Motorola says even hot-selling cell phones won"t give it a boost since year-end buyers favor cheaper, low-margin models.

The lowered expectations on Microsoft from Goldman"s Sherlund reflect recent signs from top computer makers -- like Apple and Gateway Inc. -- that holiday sales of consumer computers will not match last year"s numbers.

Sherlund trimmed his revenue estimate for Microsoft"s second fiscal quarter by $125 million, to between $6.775 billion and $6.8 billion based on signs that personal computer software sales were likely to slump. Since Microsoft software is installed on virtually every consumer PC sold, a slowdown in computer sales means a slowdown in software sales.

"There is a ripple effect," McAdams said.

For its part, Microsoft said it had not updated its guidance since October, when it said fiscal year earnings per share would be "a couple of pennies higher" than earlier consensus forecasts of $1.88. "While consumer PC demand is important, Microsoft's business is much more heavily tilted toward business computing," Microsoft spokeswoman Caroline Boren said.

But despite such reassurances, analysts say there is no sign that the storm is passing. "It"s going to be a harsh day on Wall Street tomorrow," said Gary Helmig, a computer analyst for Wit Soundview. "Just too many people are having too many problems."