Wall Street Beat: Panic Weighs on Tech Gains

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Macroeconomic clouds and apparent panic selling on Thursday, which led to the biggest intraday decline on the Dow in history, darkened the horizon for IT investors even though financial results and market surveys suggest technology is on the road to recovery from the recession.

Despite the generally positive news from vendors recently, tech shares declined along with markets as investors took in bad news from Europe. Fears that the Greek debt crisis would slow recovery in Europe hit the markets, bringing the broad Dow index down by 3 percent, or 347 points, after plunging about 1000 points during the day. The Dow ended the day at 10520.

Concerns regarding Greece reached a peak Thursday as the European Central Bank, rather than saying that it would support the purchase of European sovereign debt, gave only broad approval of Greece's savings plan.

Media reports suggested that a program or system error caused or contributed to the sell-off -- at one point in the afternoon the Dow declined 500 points in five minutes -- but by the end of the day, none of the major exchanges was reporting errors.

After the close of trading, a spokeswoman at the New York Stock Exchange said there was no evidence that errors had been found in the exchange's trading systems. In the afternoon, various media reports said that Nasdaq officials were investigating, but exchange officials were not available for comment after the market close.

CNBC reported that multiple sources said a human trading error at CitiGroup was largely responsible for the sell-off. A trader entered the letter "b" for billion, instead of "m," for million, just before the sell-off, the report said.

However, by the end of the afternoon CitiGroup said it had not found errors. "We, along with the rest of the financial industry, are investigating to find the source of today's market volatility. At this point, we have no evidence that Citi was involved in an erroneous transaction," according to a statement read by a bank spokesman.

Some market observers noted that computer-programmed trading may have actually helped to right the markets. Programmed trading systems often are set to buy or sell automatically under certain market conditions.

The market turmoil depressed IT vendor shares, as the tech-heavy Nasdaq slipped 4 percent by the end of the day. However, tech financial news was fairly upbeat this week.

Quarterly results from players in different segments of the IT market, including NetSuite, Symantec and Cognizant, confirmed sales trends from bellwether vendors last month. So far this earnings season, leading IT companies including IBM, Apple, Google, Oracle and Microsoft reported either record first-quarter results or sales that were significantly higher than last year during the recession.

Hosted ERP (enterprise resource planning) vendor NetSuite kicked off the week with a positive sales report, announcing that revenue climbed to US$43.9 million from $41.6 million a year earlier. Expenses weighed on the company, however, causing a net loss of $6.6 million, compared to $4.0 million in the first quarter of 2009. Nevertheless investors gave the company a thumbs-up, driving up shares by $0.59 Tuesday, to $15.14.

Though product development and sales and marketing costs weighed on the company, investors were impressed by the record first-quarter sales, and the company reported that bookings reached $47 million, the highest total for a quarter in NetSuite's history.

IT services company Cognizant on Tuesday reported first-quarter revenue of $959.7 million, up 28.7 percent, and income of $151.5 million, up from $113.1 million a year earlier. Company officials were upbeat about the overall outlook.

"Against the backdrop of an improving macroeconomic environment, our first quarter results confirm that our strategy of reinvestment continues to provide the platform for industry-leading growth," said Francisco D'Souza, president and CEO of Cognizant, in a company statement. "The opportunities for further penetration within our core services market remain significant. "

Reporting Wednesday, security vendor Symantec said consumer sales helped push revenue up by 4 percent to $1.5 billion, while income reached $184 million, compared to a loss of $264 million for the year-earlier period.

"Sales activity continued to improve as the team utilized the broader Symantec portfolio to take advantage of cross-sell and up-sell opportunities," said CEO Enrique Salem in the company's earnings release.

Telecom equipment supplier Alcatel-Lucent, on the other hand, reported a first-quarter loss Thursday of €515 million (US$661 million), while revenue declined by 9.8 percent to €3.2 billion. In some ways, the economic recovery worked against the vendor, as it had to compete with the auto and consumer electronics industries for components from China.

Chinese component makers have not scaled supplies back up yet after cutbacks during the recession, and so companies are competing for parts as they scramble to meet newfound demand during the recovery. If components had been plentiful, the vendor's sales would have been higher, Alcatel-Lucent officials said.

There was good news this week on the consumer electronics front. The average U.S. household spent $1,380 on consumer electronics products in the past 12 months, an increase of $151 from last year, according to a report from the Consumer Electronics Association.

Though panic had eased toward the end of the trading day Thursday, the drop in the markets showed there is still an underlying uneasiness about the economy. That is apparently affecting tech investors, despite strong sales gains by IT vendors in the first quarter.

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