Telecom Worries Rock The Market

Stocks tumbled early today after a warning from WorldCom. This morning the attention of traders was also focused on Microsoft chairman Bill Gates who took the stand for the first tim in the landmark Microsoft anti-trust trial. The market reacted to investor jitters about the telecom market and the Dow finished the day down more than 100 points. The DJIA finished at 10,136.43, down 120.68 while the Nasdaq Composite Index ended the day at 1,758.69, down 38.14. Microsoft (MSFT) closed Monday at $55.69, down $1.61.

Over the weekend representatives of the G7 nations met and agreed that a worldwide economic recovery is taking place. Indeed, except for international concerns over the impact of rising oil prices, finance ministers of the worldis wealthiest nations are optimistic that an economic rebound is taking hold. A quick look a the Dow Jones Industrial Average and the Nasdaq Composite Index and their respective one year performance charts indicates that both indexes are beginning to reflect growth in the economy through higher stock prices. The rate of recovery has differed by industry sector, but the trend toward recovery is beginning to be seen in the major market indexes.

The reporting season for first quarter results is almost over. The market continues to punish the shares of companies that disappoint Street expectations, but most major companies experiencing extraordinarily challenging times have issued warnings and share prices already reflect the reduced expectations. Of concern to analysts is guidance from corporate management for the remaining months of 2002.

Many more companies are making new highs than new lows and the tech sector may begin to benefit from new orders for hardware and services as companies plan to increase IT expenditures in the latter months of 2002. Management guidance for the second calendar quarter for the most part remains cautious. But historically stock prices tend to reflect expectations at least six months ahead of actual results. Watch for a gradual recovery in the share prices of technology companies as we move deeper into the second quarter.

Gateway

The never-say-die PC mini-major recorded for the first quarter revenue of less than 50% percent of the year earlier period and a loss of $.39 per share. Excluding special charges related to cost-cutting efforts and asset reclassifications, the company lost $.20 per share. The market reacted to the news by sending Gatewayis stock up over 7 percent on Friday. The bad news was good news to investors who were concerned results would be worse than announced. For the quarter Gatewayis revenue was $997 million, slightly higher than what the Street anticipated. During the quarter Gateway pushed 645,000 units out the door, a thirty percent drop from the year ago period. Gross margins fell to 12.6 percent.

Apple now outperforms Gateway in total units shipped and worldwide revenues. Gateway expects to return to positive cash flow from operations by the end of 2002 and return to profitability in 2003.

Adobe Systems (ADBE) announced last week the release of Photoshop 7. Adobe has also upgraded its popular collection series of software bundles to include the newer, Mac OS X compatible version of the ubiquitous photo editing software application. Adobe finished Monday at $38.72, down $.59.

Akamai (AKAM) is struggling to regain the confidence of analysts after last weekis earnings announcements. Akamai met the Streetis expectations for the quarter, but offered guidance for the current quarter that estimates revenue will be down 8 percent from the Streetis prior expectations. After losing more than an eighth of its market cap on Friday, Akamailost $.28 to close at $3.35.

Apple (AAPL) ended the day at $24.53, down $.45. Since releasing earnings information last week, Apple has fallen below the $25 per share threshold.

Corel (CORL) continues to struggle in finding a growth market for its products. The company has endured severe cost-cutting measures and has yet to signal when it will return to sustained profitability. Corel closed on Monday at $1.41, down $.02.

DELL (DELL) continues to confound skeptics as it gains significant market share in the US and overseas. According to CBS match Watch, Dataquest has reported that in the first quarter Dellis US market share grew to 26.3 percent and its share of the worldwide market grew to 14.3 percent. Dell ended Monday at $27.15, down $.19.

Gateway (GTW) finished at $6.42, down $.23.

IBM (IBM) is recovering from its recent 52-week low. The company has been ensnared by concerns about accounting practices in the aftermath of the Enron collapse and management efforts to engineer earnings. Fundamentally, IBM is a rock-solid company with an impressive product line. IBM was at $87.93, down $1.07 when the New York market stopped trading on Monday.

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