Tech turnaround more elusive after latest warnings

By Lisa Singhania The Associated Press
Saturday August 18, 2001

Hopes for a tech turnaround suffered another blow this past week when Ciena Inc. and Dell Computer Corp. became the latest sector bellwethers to report weak results and pessimistic forecasts. 

The wave of bad news, which came as the Nasdaq composite index hit lows not seen since April, only exacerbated Wall Street’s already sour mood after months of stock hemorrhaging. Even next week’s expected interest rate cut by the Federal Reserve is unlikely to cheer investors fed-up by a market that can’t seem to advance. 

“We’re grappling with the fact that 2001 is a write-off. Now we’re setting our sights on 2002, but the longer the recovery gets put off, the more nervous Wall Street becomes,” said John Forelli, portfolio manager for the John Hancock Core Value Fund. “In the meantime, investors are beginning to fear that consumers might pull back and that the next step for the economy is down.” 

Specifically, Ciena warned Thursday that it would miss earnings and revenue forecasts for its fourth quarter and fiscal 2002 because of a slowdown in spending in telecommunications carriers. The optical network equipment maker’s warning came after it beat third quarter expectations, despite a nearly 80 percent drop in profits. The same day, Dell Computer met second quarter expectations, but said its third-quarter results would likely fall short of Wall Street’s estimates because of soft demand and falling prices. 

But analysts hesitated to blame Ciena or Dell for the market’s weakness, even though both stocks ended the week lower. They contend the problem is the lack of indications that earnings are going to improve, rather than worries about individual companies’ performance.  

Investors have also been disheartened by the number and magnitude of similar announcements coming from outside the technology sector, all reminders of how widespread the economic malaise is. This week alone, a handful of retailers – including Gap, Tiffany and Wal-Mart – reduced their forecasts for future quarters. 

“This is what the dissolution of hope looks like and the trading pattern we’ve been seeing is beautifully emblematic of it,” said Chris Wolfe, equity market strategist for J.P. Morgan Private Bank. “The market goes up and people think maybe we’re too high and things get crushed. Then people get hopeful again, and it starts over.” 

The Fed is expected to lower interest rates by a quarter percentage point at its meeting next week – its seventh rate cut this year – but analysts are doubtful such a move will do much for stocks. 

Although a bigger-than-expected cut might temporarily boost stocks, such a move could also intensify fears that the Fed knows something investors don’t, and the economy is in worse shape than thought. 

Lisa Singhania is a business analyst for The Associated Press