US technology stocks suffered a day of heavy losses yesterday in response to disappointing earnings growth by Microsoft and reports that the government is leaning towards a breakup of the software group.
The Nasdaq composite index fell 208.43 points, or 5.72%, to 3,434.47 in late morning trading as the gloom about Microsoft's prospects spread across the rest of the technology sector.
Intel, the world's largest chip manufacturer, was among the early fallers, losing $2.06 to $113.31 by mid-afternoon. Cisco Systems, which provides much of the hardware that manages data flow across the internet, fell 3 to 62.
Sun Microsystems, one of the big players in the server market, was also on the slide, along with the cellular phone equipment maker Qualcomm, Yahoo!, the online auctioneer eBay and Amazon.com, the internet retailer, which dipped 4 1/16 to 47 11/16.
But Microsoft's difficulties - which were the trigger a few weeks ago for one of Wall Street's worst falls on record - failed to spread to the rest of the market, with the blue chip Dow Jones industrial average registering little change.
After the three-day Easter holiday it was the first day of trading since Thursday night's warning by the company that business demand for PCs was waning. The share price was marked down from the outset in New York.
The damage was compounded by reports that the courts may order the break-up of the Microsoft group for violating anti-trust laws. Sources close to the case said the government would propose splitting it into two, separating its Office software from the Windows operating system.
"There is a feeling that if Microsoft's growth rate is going to be lower then the stock warrants a lower valuation," said Harvey Hirshhorn, chief economist and investment strategist at fund manager Stein Roe and Farnham.
"You also have near term concern about corporate PC growth and you are getting downgrades and talk that the federal government may be pressing to break it up."
Yesterday's losses in the technology sector came at the start of what is likely to be a volatile week for trading, with a plethora of economic data due to be released which could influence share valuations.
Today there will be consumer confidence and homes sales data for the market to digest. Tomorrow brings the latest durable goods orders and on Thursday the government will publish key output and employment costs figures.
Economists say tame wage pressures would help to sooth angst at the US Federal Reserve over March's higher than expected inflation data but are unlikely to prevent further rate rises.
The next Fed meeting on May 16 will probably result in a quarter-point increase, although some analysts fear a half-point rise to guard against the risks of overheating.
