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Biz Break: Chip, networking companies push tech stocks to pre-earnings plunge [San Jose Mercury News](San Jose Mercury News (CA) Via Acquire Media NewsEdge) Oct. 13--Today: Wall Street's steep downturn continues as semiconductor and networking companies get hit hard ahead of earnings reports. The Lead: Chip, networking doubts help spur big drop in tech stocks Wall Street completed its worst three-day plunge since 2011 on Monday, as concerns about the chip and networking sectors helped ravage Silicon Valley tech stocks. All the major stock indexes declined more than 1.3 percent Monday, their third straight day of steep drops that has pushed the Standard & Poor's 500 down 4.8 percent, the most for a three-day period since November 2011. Silicon Valley tech stocks have fallen even harder, declining 5.5 percent in the past three days as concerns have cropped up in the chip and networking sectors ahead of the beginning of earnings season. Semiconductor companies have been hit by investors since Microchip Technology CEO Steve Sanghi predicted Thursday evening that the chip sector was entering a correction, explaining that his company's revenue-recognition procedures would expose a serious issue earlier than other companies. Analysts released notes Monday morning examining Sanghi's prediction and expressing surprise at the drastic reaction, which has pushed Intel, the world's largest chipmaker, down more than 8 percent since Thursday and created similar moves for competitors. "We were floored by the magnitude of the move in some of the stocks," Cowen analyst Tim Arcuri wrote, later noting, "We received phone calls all day from investors puzzled by the move in some seemingly unrelated stocks." Drexel Hamilton analyst Rick Whittington didn't agree with Microchip, calling its warning "an overly draconian reminder that individual companies can lose footing in fast changing market environs," and concluded, "Forthcoming earnings reports will show a chip industry still in rough equilibrium." Analysts who agreed with Microchip's warning on its sector predicted a short correction for semiconductor companies. Morgan Stanley's Joseph Moore wrote that chip companies are facing a challenging couple of quarters ahead as demand falls industrywide. "After a strong first half of the year, we are seeing recent demand weakness in nearly every market vertical that consumes semiconductors, including PCs, smartphones (other than Apple), telecom capital spending, automotive, and industrial," he wrote. Intel will provide the first important glimpse into the chip market's third-quarter performance Tuesday, when it releases the first major earnings report from Silicon Valley this quarter, with Linear Technology and Freescale Semiconductor scheduled for later in the week. Networking companies are struggling after a handful of Silicon Valley firms have been forced to divulge weak quarters ahead of their actual earnings reports. Aerohive Networks, a Sunnyvale company that went public earlier this year, was the latest to reveal disappointing sales on Monday, after Riverbed Networks and Juniper Networks went the same route last week. "The Q3 shortfall was primarily in our less-developed sales territories where sales capacity is not ramping as quickly as expected and performance has been inconsistent," CEO David Flynn said. Aerohive's reasoning for the downfall didn't keep it from investors' revenge -- Shares dove more than 32 percent to $4.49, less than half the $10 share price Aerohive commanded in its March initial public offering. Arista Networks, another Silicon Valley networking firm that went public this year to a much warmer welcome than Aerohive, lost 5.5 percent to $73,69 and is down more than 22 percent from its peak price. Industry leader Cisco Systems dropped 1.8 percent to $22.93 and has lost more than 7 percent of its market capitalization in the past three trading sessions, and Dialogic -- which recently moved from San Jose to New Jersey -- plummeted 80 percent to match the 15 cents-per-share acquisition offer it received in a convoluted deal. Unlike Friday, when only five SV150 stocks managed gains, there were signs of positivity in even the most damaged of sectors. Barracuda Networks seemed to get a delayed bounce from a strong earnings report that was the first from an SV150 company when it arrived last week, leading the index with a 9.1 percent increase at $28.61. SV150 market report: Apple drops amid troubles with Finland, sapphire supplier Wall Street's suffering was spread around, with non-tech sectors such as energy taking a big hit as more stocks reached official "oversold" status than at any other point in the year so far. Apple held up for most of the day before closing with a 0.9 percent decline at $99.81 while taking blame for the economic downturn in Finland. The Cupertino tech giant laid out its plans for international iPhone releases over the next couple of weeks while planning a debut event at corporate headquarters this Thursday. Apple is also nearing the rollout of its vaunted payments service, Apple Pay, according to a report, while continuing to deal with ramifications from the bankruptcy of sapphire supplier GT Advanced. GoPro dropped 9.9 percent to $76.67 after rumors one of the San Mateo company's cameras was involved in a skiing injury to famed race car driver Michael Schumacher. Google declined 1.9 percent to $544.75 and lost 3.1 percent to $38.38 while facing scrutiny from the FTC for search advertisements. Tesla Motors continued a rough stretch that began after last week's "Unveil the D" event, sinking 5.2 percent to $224.59 while a few drivers petitioned for a retrofit to receive the new features Tesla showed off last week. Twitter dropped 3.8 percent to $48.49 while launching a payments experiment in France, and rival Facebook added 0.1 percent to $72.99 as CEO Mark Zuckerberg visited Indonesia. Redwood City-based Shutterfly reportedly saw its chances of being acquired go poof at the end of last week, and shares retreated 11.8 percent to $41.42. Up: Symantec, AMD, Oracle, Facebook Down: Yelp, Tesla, Applied Materials, Zynga, Twitter, SanDisk, EA, Yahoo, Netflix, Salesforce, eBay The SV150 index of Silicon Valley's largest tech companies: Down 20.88, or 1.38 percent, to 1,511.48 The tech-heavy Nasdaq composite index: Down 62.58, or 1.46 percent, to 4,213.66 The blue chip Dow Jones industrial average: Down 223.03, or 1.35 percent, to 16,321.07 And the widely watched Standard & Poor's 500 index: Down 31.39, or 1.65 percent, to 1,874.74 Sign up for the 60-Second Business Break newsletter at www.siliconvalley.com. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510. ___ (c)2014 the San Jose Mercury News (San Jose, Calif.) Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com Distributed by MCT Information Services |