Weaker-than-Expected Earnings Trigger Selloff of Computer-Related Stocks

Strategic Insights -

The announcements of disappointing earnings from Digital Equipment Corp. and Intel Corp. led to a decline in several computer-related stocks on the New York Stock Exchange and the Nasdaq Stock Market. Digital Equipment Corp.'s stock fell 10.3% to close at $32.75, while Intel's shares dropped 7.1% to $62.50. The struggling computer maker, Digital Equipment Corp., reported a loss of $72.1-million or 53 cents a share for its latest quarter, while Intel's profit was less than Wall Street estimates. Analysts expressed concerns about the companies' recovery, citing low revenues and profit margins.

Key Takeaways:

  • Digital Equipment Corp.'s stock plunged 10.3% to $32.75 on the New York Stock Exchange, making it the most actively traded stock.
  • Intel's shares dropped 7.1% to $62.50, topping the list of most actively traded stocks on the Nasdaq Stock Market.
  • Digital Equipment Corp.'s gross profit margins dropped five points, meaning earnings fell 5 cents for every dollar of sales.
  • Intel's profit margin was pinched by price cuts and higher operating costs, resulting in lower profit margins despite a 38-per-cent jump in profit.
  • Merrill Lynch & Co. Inc. downgraded its long-term rating on Intel to above average from buy, while maintaining its near-term neutral rating.
  • Other high-tech stocks, such as Sun Microsystems Inc., Applied Materials Inc., and Synoptics Communications Inc., also suffered due to weaker-than-expected earnings.

Statistics:

  • Digital Equipment Corp.'s loss was $72.1-million or 53 cents a share for its latest quarter.
  • Intel's profit was $594-million or $1.35 a share, up from $429-million or 99 cents in the previous year.
  • Price cuts and higher operating costs, including startup costs for chip factories in California and Ireland, pinched Intel's profit margins.
  • Digital Equipment Corp.'s gross profit margins dropped five points.
  • Intel's shares closed at $62.50, with a decline of $4.75.

Sources:

  • Reuters News Agency
  • Digital Equipment Corp.
  • Intel Corp.
  • First Boston
  • Merrill Lynch & Co. Inc.
  • The New York Stock Exchange
  • The Nasdaq Stock Market
  • Sun Microsystems Inc.
  • Applied Materials Inc.
  • Synoptics Communications Inc.
  • Borland International Inc.