--DJIA down 66; Nasdaq down 15; S&P 500 down 5
--Networkers weak; Biotechs, chips up
By Rebecca Byrne New York, June 15 (BridgeNews) - U.S. stocks ended lower Friday after networking giants Nortel Networks (NT) and JDS Uniphase (JDSU) surprised Wall Street by cutting earnings estimates once again. Still, stocks did manage to end off their worst levels for the day. The Nasdaq closed down 15.64, or 0.77%, to 2028.43. The Dow was down 66.49, or 0.62%, to 10,623.64 and the S&P 500 was down 5.51, or 0.45%, to 1214.36. * * *
"The market has been clearly burdened by the JDS and Nortel news," said Alan Ackerman, chief market analyst at Fahnestock & Co. "Disappointments continue to devastate the price of individual stocks." JDS Uniphase fell almost 10% to 12.44 after saying it expects a pro forma loss of 6 to 8 cents a share in the fourth quarter, compared with a 5-cent gain expected by analysts. The loss stems from an inventory writedown charge.
Analysts said the big surprise was that the company now expects its first-quarter revenues to decline by 25% sequentially. Meanwhile, Nortel said it now expects a second-quarter operating loss of $1.5 billion, or 48 cents a share, while analysts were expecting a loss of just 6 cents a share. The company also plans to ax 10,000 jobs by September and take a $16.7 billion charge. Nortel fell 7% to 9.86 but the stock had been down as much as 17% earlier, while JDSU had been down as much as 21% at one stage.
"The price action has actually been pretty good given that they've basically delivered the worst case scenario," noted Ben Hovermale, head trader at Wells Capital Management. Indeed, the whole market staged an impressive comeback Friday after early weakness. The Dow had been down as much as 124 points at its nadir while the Nasdaq had been down 52 points, or 2.5%. "The market got extremely oversold, so (we saw) a bounce off the lows," said Tom Schrader, trader at Legg Mason. He added that a call out of Merrill Lynch projecting a 50 basis point rate cut at the end of the month also helped sentiment, although investors were unable to completely shake off nervousness tied to corporate profits.
Networking stocks fell almost 5% on average while hardware, Internet and communication chip companies also came under fire. Merrill Lynch analyst Joe Osha made more cautious comments on the Comm-IC sector Friday, saying price-to-earnings and price-to-sales multiples are still high. "We believe that several potential negative catalysts could weigh on the group in the intermediate term," Osha said in a research note. Applied Micro Circuits (AMCC) fell 7%; Vitesse Semiconductor (VTSS) lost 3% and PMC Sierra (PMCS) fell 5%. Still, the PHLX Semiconductor index rose 0.89% to 608. On the Dow, Microsoft (MSFT) fell 1% to 68.02 on rumors it will issue a profit warning. McDonald's (MCD) also declined after reducing profit projections with its second earnings warning in as many quarters. Shares fell 4% to 28.67
Honeywell (HON) rose, however, after falling 12% Thursday on news that the merger with General Electric (GE) may be quashed by the European Union. President George Bush expressed concern in Warsaw on Friday that the European Commission might obstruct the $45 billion deal. "We brought up the proposed merger at the appropriate level during this trip ... and I am concerned that the Europeans have rejected it, " Bush said. Honeywell was up 4% to 38.80. General Electric fell 0.05 to 48.81 while United Technologies (UTX) fell 3% to 74.75. Volume on the NYSE was a very heavy 1.57 billion shares, with declines topping advances by 15 to 14. Nasdaq volume hit 2.09 billion, with losers beating winners by 21 to 16. Volume was heavier than normal due to triple witching, or the expiration of options on stocks, indexes and futures.
In the bond market, the 30-year Treasury rose 15/32, pushing its yield down to 5.674%. Meanwhile, NYMEX July crude futures were down 53 cents at $28.51 a barrel. In currency trade, the euro fell against the dollar to 86.12 cents. The dollar rose against the yen to 122.90. CORPORATE NEWS Delta Air Lines Inc. (DAL) expects to report a net loss of $140 million to $160 million, or $1.15 to $1.30 per share, for the second quarter, significantly below the First Call consensus for a loss of 58 cents per share, the company said in a filing with the Securities and Exchange Commission. Delta cited "a weakening U.S. economy and a strike at Comair" for the wider loss. Shares rose 0.19 to 42.95. Circuit City Group's (CC) first-quarter profit fell 82%, due to a 23% fall in sales and a 13% decline in same-store sales, which excludes the appliance category. The firm earned $10.1 million, or 5 cents a share, compared with $57.1 million, or 28 cents a share, a year ago. Shares rose 0.09 to 15.49. Procter & Gamble Co. (PG) confirmed it expects core earnings for the fourth quarter to be in line with current estimates. It expects operating profits to grow at least in mid-single digits and sales to grow in the low single digits excluding foreign exchange impact. Shares fell 3% to 62.60. ECONOMIC NEWS Inflation in the U.S. economy mostly remained in check in May as consumer prices rose 0.4%, pushed up by energy prices, the Labor Department said Friday. Excluding volatile food and energy costs, "core" consumer prices rose only 0.1%. Analysts had expected the overall CPI to rise 0.4%, and the "core" CPI to post a 0.2% increase.
U.S. industry slipped further into the mire in May as widespread weakness in factory, mining and utility activity left production down 0.8%, the eighth successive contraction and the largest since January, the Federal Reserve reported Friday. The fall in output forced the capacity utilization rate to 77.4% -- its lowest level since August 1983. U.S. consumer attitudes on the economy were little changed in early June compared with the May readings released on May 25, according to analysts familiar with the private survey released Friday by the University of Michigan.
BIGGEST GAINERS Immune Response Corp (IMNR) rose 154% to 4 after Trinity Medical Group said clinical data has shown that its Remune therapy to treat patients with HIV is safe. Children's Comprehensive Services (KIDS) rose 23% to 5 after saying it is in talks to be acquired for $6 a share in cash.
BIGGEST LOSERS International Rectifier Corp. (IRF) fell 32% to 37.20 after cutting its fourth-quarter revenue estimates to between $179 million and $193 million from its previous estimate of between $237 million and $257 million. Bush Industries Inc. (BSH) fell 15% to 13.40 after saying it expects second-quarter earnings of 10 cents a share, below the consensus estimate of 20 cents.
MONDAY'S OUTLOOK U.S. stocks are due for a technical bounce on the start although investors remain wary going into the main earnings warning season. Technology heavyweight Oracle will report earnings after the close. Meanwhile, there is little in economic news to move the market. Equities futures, which typically signal the direction of the cash market, ended Chicago trade with an upside bias. S&P 500 futures finished at 1226, or 4 points above fair value, indicating a moderate bullish bent on the close. Nasdaq 100 futures ended at 1728, 10 points above fair value. Dow futures closed at 10,735, with fair value at 10,680. The Nasdaq 100 after-hours indicator was up 2.41 to 1802.30 at 1655 ET. On the economic front, the June National Association of Home Builders report is due out at 1300 ET. Companies expected to report earnings results Monday include software maker Oracle (ORCL) and contract electronics firm Solectron (SLR).
ECONOMIC CALENDAR
About 1000 ET: Federal Reserve Bank of Richmond President Alfred Broaddus speaks on the economy and banking issues to the Virginia Bankers Association, Hot Springs, Va. --1300 ET: June National Association of Home Builders report --About 1330 ET: Treasury releases results of auction of $26 bln in 13- & 26-week bills (Previous accepted rates: 13-week 3.510%, 26-week 3.510%)