Tech Stocks Slide

Elena
10 Feb, 2006
New York City

Disappointing outlook from Pfizer and record-high trade deficit for 2005 sent stocks to the downside. Pfizer projected flat sales for 2006 and earnings of $2 a share, below estimates of $2.03. Oracle revealed that it had closed its $5.9 billion acquisition of Siebel Systems and will cut 2,000 jobs. Among today''s tech winners were TriZetto, up 17%, McAfee, up 12%, and Ultimate software rising 5%. Quality Systems, Intel, Apple and Microsoft declined.

U.S. MARKET AVERAGES

Stocks declined Friday morning as lower-than-expected earnings outlook from Dow component Pfizer raised concerns about lower overall corporate profits for 2006 and the Department of Commerce released a new record for the U.S. trade deficit.

The Commerce Department said that trade deficit widened to $65.7 billion in December from an upwardly revised $64.7 billion in November and reached a record $725.8 billion in 2005 It's the fourth straight record annual deficit, and with rising energy prices worldwide, investors worried that higher import prices could spark domestic inflation.

Pfizer projected flat sales for 2006 due to a loss of patent protection on some of its top-selling drugs. The company forecast full-year earnings of $2 per share, below analysts' estimates of $2.03 per share.

In corporate news, Oracle Corp. ((ORCL)), business software company, revealed that it had closed its $5.9 billion acquisition of Siebel Systems and will cut 2,000 jobs. Oracle also gave a profit outlook for the remainder of the year roughly in line with estimates. The company said it expects Q3 earnings of 13-14 cents per share, up from 10 cents a share last year with revenues higher by 17-19%. Excluding one-time items, Oracle said it will earn 18 cents per share in the quarter, vs. expectations of 19 cents per share on revenues of $3.45 billion. For Q4, Oracle expects earnings of 21-23 cents per share on revenue growth of 13%-17%.

The gold sector moved to a two-week low, declining about 4.8%. The disk drive and semiconductor sectors were other standouts moving to the downside, with losses of 1.9% and 1.8%, respectively.

Insurance stocks were among the very few sectors posting strength with Aon ((AOC)) being the main inspiration for this advance, climbing about 8% on earnings news.

Allied Waste ((AW)) moved to a new 52-week high on higher Q4 earnings. Competitor Waste Management ((WMI)) also hit a fresh peak. BellSouth ((BLS)) ticked above a week-long trading range to reach a new high.

Only a few significant stocks moved to new 52-week lows on Friday, including Audible ((ADBL)) and Inspire Pharmaceuticals ((ISPH)).

In midday trading, the Dow sank 22.89, or 0.21%. The Standard & Poor's 500 index slid 3.39, or 0.27%, and the Nasdaq composite index dropped 11.20, or 0.5%.

Bonds moved higher as investors hedged against economic uncertainty, with the yield on the 10-year Treasury note falling to 4.54% from 4.55% late Thursday. The 2-year Treasury yield was down slightly at 4.66%, but the inversion of the yield curve signaled a lack of short-term confidence and fed worries about an economic downturn.

MOVERS AND SHAKERS

Pfizer Inc ((PFE)), drug company, projected earnings of $1.52 to $1.56 a share for 2006, and adjusted earnings, excluding special items of about $2 a share. The Dow component anticipates revenue for 2006 will be comparable to its 2005 total of $51.3 billion. The current average estimate of analysts is for a profit of $2.04 a share for 2006 on revenue of $51.58 billion. The company’s shares fell 3.3%.

Atari Inc ((ATAR)), video game company, reported Q3 net loss of $4.76 million, or 4 cents a share vs. net earnings of $19.6 million, or 16 cents a share a year ago, missing estimates of 17 cents a share. Revenue fell 36% to $100.8 million from $156.4 million last year. The stock dropped 19%.

Phelps Dodge ((PD)) dropped 5% after it was downgraded at Prudential Equity Group to neutral weight from overweight.

Cisco Systems ((CSCO)), networking company, plans to sell $5.5 billion of senior unsecured notes, the proceeds of which the company will use to fund its proposed acquisition of Scientific-Atlanta and other general corporate purposes. Cisco’s share gained 1%.

Aon Corp ((AON)), insurance company, posted Q4 net income of $224 million, or 65 cents a share, compared with $81 million, or 24 cents a share last year. Quarterly revenue was $2.53 billion, compared with $2.6 billion last year, missing expectations of $2.61 billion. The company expects cumulative pretax charges of $262 million in connection with its previously announced 3-year restructuring plan. The stock rose 7.3%.

ECONOMIC NEWS

Friday morning, the Department of Commerce released its report on the U.S. trade deficit in the month of December. The report showed that the trade deficit widened more than economists had been expecting and reached a record high for the full year.

The Commerce Dept. said that the trade deficit widened to $65.7 billion in December from an upwardly revised $64.7 billion in November. Economists had been expecting the deficit to widen to $65.0 billion from the $64.2 billion originally reported for the previous month.

The wider trade deficit came as the value of both imports and exports increased in December. The report showed that imports rose 1.9 percent to $177.2 billion while exports rose 2.1 percent to $111.5 billion.

With the increase in December, the trade deficit for 2005 reached an all-time high of $725.8 billion, up 17.5 percent from the previous record of $617.6 billion set in 2004. The increase came as a 12.9 percent increase in imports outpaced a 5.7 percent increase in exports.

The Commerce Dept. noted that the trade deficit as a percentage of U.S. gross domestic product rose to 5.8 percent in 2005 from 5.3 percent in 2004.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks finished mixed. The Nikkei dipped 2% in the morning but economic data, which supported industrial shares, helped the index to erase some of the losses and close 1.1% below the flat line. Taiwan Weighted index declined 0.5%. Among the gainers, Shanghai Composite rose 1% and South Korea’s Kospi reversed from losses to surge 1.85% after the Bank of Korea raised interest rate and institutional buying lifted banks and automotives.

European stocks extended losses to close down, pressured by lower start of U.S. markets on disappointing earnings outlook from Pfizer. However, gains in the auto sector on the back of strong earnings from Volkswagen limited losses The German DAX 30 lost 0.5%, the French CAC 40 fell 0.6%, and London’s FTSE 100 slipped 0.4%.

OIL, METALS, CURRENCIES

Crude oil prices eased back on falling fuels demand. Light sweet crude for March delivery fell 12 cents to $62.50 a barrel. Heating oil was steady at $1.6067 a gallon. Gasoline traded at $1.5147. Natural gas gained 2 cents to $7.455 per 1,000 cubic feet.

European gold traded lower Friday. In London gold fell to $547.60 bid per troy ounce from $559.60. In Zurich the precious metal traded at $550.40, down from $559.10. In Hong Kong gold climbed $3.10 to close at $559.5. Silver closed at $9.30, down from $9.56.

Copper for March delivery dropped 5.6 cents, or 2.4%, to $2.249 a pound on the Nymex.

The U.S. dollar turned mixed against other major currencies. The euro was quoted at $1.1927, down from $1.1970. The dollar bought 117.55 yen, down from $118.82. The British pound stood at $1.7463, up from $1.7398.

EARNINGS NEWS

Diagnostic Products Corp, ((DP)), immunodiagnostic systems and immunochemistry producer, reported Q4 earnings of 43 cents a share, up from a profit of 37 cents a share a year-ago on 4% sales growth. The company announced that sales of its Immulite reagent products rose 6% to $95.4 million in Q4.

Arch Coal Inc, ((ACI)), coal-mining company, reported a Q4 loss of 2 cents a share, down from a net income of 32 cents a share in the year-ago period. The company incurred one-time items in Q4 of 2005, including a gain from asset sales and charges for a mine fire in Colorado and a legal settlement in West Virginia, without which the company’s income would have been 25 cents a share, still missing analysts forecast for earnings of 29 cents a share.

Visteon Corp, ((VC)), automotive systems supplier, reported Q4 earnings of $10.25 a share, reversing from a year-earlier loss of $1.10 a share. Q4 results included a gain of $1.8 billion related to an asset sale, $335 million in asset impairment charges, and $28 million in restructuring expenses. The year-earlier period included restructuring expenses of $41 million. Sales declined in Q4 to $2.87 billion from $4.52 billion in the same period a year ago.

Avista Corp, ((AVA)), energy company, reported Q4 net income of 52 cents a share, up from 46 cents a share a year-ago. Avista confirmed its forecast for 2006, for consolidated earnings to be in the range of $1.30 to $1.45 a share.

Coventry Health Care Inc, ((CVH)), managed health care company, reported Q4 earnings of 77 cents a share, up from a profit of 67 cents a share a year-earlier on revenue growth. If not for a loss related to Hurricane Katrina, the company posted a profit of 81 cents a share, beating analysts’ expectations for a profit of 80 cents a share.

SCANA Corp, ((SCG)), electricity and natural gas company, reported earnings of 65 cents a share, up from 37 cents a share in the year-ago period on higher margins on sales of electricity and natural gas, beating analysts’ forecasts of 60 cents a share.

Caraustar Industries Inc, ((CSAR)), recycled paperboard company, reported a Q4 loss from continuing operations of $1.24 a share, down from an equivalent profit of 29 cents a share a year-ago. If not for items such as $40.3 million in restructuring and impairment costs, the company earned a penny per share in Q4, in line with analyst estimate. Sales inched down to $211 million in Q4 from $211.7 million in the same period a year ago.