Techs take the lead

January 23, 2002 Posted: 2252 GMT

By Staff Writer Alexandra Twin

NEW YORK (CNN/Money) -- U.S. tech stocks stepped up to the plate Wednesday, as signs of improving demand within the chip sector gave a little kick to the Nasdaq composite, outshining lethargic buying in more traditional blue-chip names.

The semiconductor group asserted its role as one of a few sectors that dictate the direction of technology buying. The chips preened on a stronger-than-expected book-to-bill ratio -- implying improved demand -- as well as positive quarterly results out of chipmaking equipment manufacturer Novellus Systems and a bullish sector note out of J.P. Morgan.

But traditional blue-chip buyers held back, keeping the Dow Jones industrial average in a tight range throughout the day, perhaps reflecting a broader lack of enthusiasm.

"There's no conviction out there right now. The rallies don't hold," Ted Weisberg, trader at Seaport Securities, told CNNfn's Street Sweep.

The Nasdaq composite index rose 39.85 to 1,922.38, while the Dow Jones industrial average added a modest 17.16 to close at 9,730.96. The Standard & Poor's 500 added 8.87 to 1,128.18.

Asian stock markets closed lower Wednesday, while European bourses closed mixed.

Treasury prices closed lower, with the yield on the 10-year note up to 5.02 percent. The dollar was higher against the euro and the yen. Light crude oil futures rose 52 cents to $19.50 a barrel in New York.

Market breadth was positive. On the New York Stock Exchange, advancers topped decliners by almost 2-to-1 as nearly 1.43 billion shares changed hands. On the Nasdaq, winners beat losers 3-to-2 as 1.84 billion shares traded.

Semis set the pace

Semiconductor issues helped drive the tech-fueled Nasdaq, giving the composite an edge over the broader market.

North American-based semiconductor manufacturers said that they saw their book-to-bill ratio increase in December by about 7 percent from November. The number reflects the ratio of the products companies ship versus the products actually ordered. A higher number implies the sector is seeing improved demand.

The chips also got a boost from better-than-expected results. Chip equipment maker Novellus Systems (NVLS: up $3.42 to $39.65, Research, Estimates) said it earned 12 cents per share in the fourth quarter, a decline from the same period one year earlier, but a penny better than what analysts were betting on.

Novellus was one of a number of stocks upgraded to "long-term buy" from "market performer" in a J.P. Morgan note that was bullish on the sector. Another company getting the firm's vote of confidence was KLA-Tencor (KLAC: up $3.64 to $51.50, Research, Estimates).

KLA-Tencor was one of several chipmakers reporting results after the bell. The company earned 25 cents in its fiscal second quarter, edging estimates by a penny.

On the downside was Vitesse Semiconductor (VTSS: down $0.74 to $11.62, Research, Estimates), which had its wings clipped by Goldman Sachs after the chipmaker and supplier reported a fiscal first-quarter loss of 12 cents a share. While a penny better than expected, that was a 76 percent decline from the same period one year earlier.

Cell phone maker Motorola (MOT: up $0.03 to $13.56, Research, Estimates) reported a fourth-quarter operating loss of 4 cents a share, narrower than the 5-cent-a-share loss expected by a consensus of analysts, but a sharp decline from the 15 cents a share earned one year earlier.

However, looking forward, the company said current 2002 consensus estimates of 4 cents a share in earnings are possibly too conservative. The company thinks it can earn as much as 15 cents a share in the year.

Outside of tech, drugmaker Pfizer (PFE: up $1.00 to $41.80, Research, Estimates) was active after posting a fourth-quarter profit of 34 cents a share, meeting the expectations of analysts but bettering results from the same period one year earlier.

Conglomerate Tyco International (TYC: down $2.45 to $45.10, Research, Estimates), a stock in the news Tuesday, remained extremely active as investors sold the stock on news that it will split into four separate companies.

Boeing, DuPont among Dow stocks reporting

Four components of the Dow industrials reported results Wednesday, bringing the total to 16 out of 30 for the most recent period.

Aerospace manufacturer Boeing (BA: down $0.45 to $39.33, Research, Estimates) said earnings in the fourth quarter toppled from the same period one year before, with results meeting analysts' expectations.

Construction equipment maker Caterpillar (CAT: up $0.58 to $48.76, Research, Estimates) reported a fourth-quarter operating profit in line with estimates and flat with the same period one year earlier.

Chemical maker DuPont (DD: up $0.83 to $41.27, Research, Estimates) said profit in the fourth quarter fell 77 percent from the same period one year prior.

No. 1 oil company Exxon Mobil (XOM: up $0.88 to $38.90, Research, Estimates) reported fourth-quarter results that declined from the same period one year earlier, but nonetheless topped analysts' expectations.

Microsoft (MSFT: down $0.72 to $63.74, Research, Estimates) was little changed after a late Tuesday announcement that Netscape, a unit of CNN/Money parent AOL Time Warner (AOL: up $0.40 to $28.80, Research, Estimates), has filed an antitrust lawsuit against the software maker.

On Tuesday, chain retailer Kmart (KM: up $0.20 to $0.89, Research, Estimates) announced that it had filed for Chapter 11 bankruptcy protection.

For Morgan Stanley, this creates a space for competitor Wal-Mart Stores (WMT: up $1.85 to $59.86, Research, Estimates) to step forward. On Wednesday, the brokerage firm reiterated its "strong buy" rating and $65 price target on the stock, as well as saying that the company should earn an additional 5-to-7 cents in earnings per share over 2002 and 2003.

In addition to Wal-Mart, 3M (MMM: up $1.04 to $107.46, Research, Estimates) was a source of strength on the Dow, while IBM (IBM: down $2.60 to $107.90, Research, Estimates) and Coca-Cola (KO: down $1.12 to $44.78, Research, Estimates) were big Dow losers.

After the close of trade, fiber optics maker Corning (GLW: down $0.14 to $8.32, Research, Estimates) reported a narrower-than-expected fourth-quarter operating loss, despite a worse-than-expected drop in revenue.

"Markets are going to drift in this range ... until corporate profits and GDP (gross domestic product) start to improve," Donald Selkin, chief investment strategist at Joseph Gunnar, told CNNfn's Before Hours.

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