01/22/96 POST-WIN95 DEPRESSION SETS IN

POST-WIN95 DEPRESSION SETS IN
Did the tech boom bust-or just high expectations?
Adobe Systems, Symantec, Motorola. One by one, starting on Jan. 5, high-technology companies went public with unnerving news of earnings disappointments. Crash! Jittery investors sent shares of Adobe Systems Inc. down 9%, to 38. Symantec Corp. fell 33%, to 10 3/8, and Motorola Inc. dropped 19%, to 45 5/8. Late on Jan. 10, Apple Computer Inc. said it would post a $68 million quarterly operating loss--and its stock sank, too. After 18 months of dizzying performance, computer shares took a bath, driving the tech-heavy NASDAQ down 33 points, or 5.9%.
There was an element of deja vu in all this. In recent years, technology investors regularly have lost their nerve every three months, just before their companies issue quarterly profits pronouncements. This time, shareholders fretted about lower-than-expected sales of Microsoft Corp.'s Windows 95, about a potential glut of semiconductor capacity, and more than anything, about a slowdown in the booming personal computer business.
EASILY SPOOKED. Analysts responded to the bloodbath as they have to previous high-tech corrections, coolly repeating that the underlying fundamentals fueling the tech boom are still strong. Really, said some market watchers, the problem was one of investors' overheated expectations. ``We got too optimistic on the upside, and we're getting too pessimistic right now,'' says Dan Niles, a chip analyst with Robertson, Stephens & Co. Adding to the sector's volatility: an unprecedented number of nontechnical investors who were easily spooked.
That explanation, though, may be too facile. True, it's premature to declare the tech boom dead. But there are signs that this time, investors may have real reason to grit their teeth. For one, there was Windows 95, the new operating-system software that was supposed to trigger a major buying cycle as customers purchased more powerful PCs and software. Anticipation of such demand powered much of last year's nearly 50% tech-stock runup.
Microsoft itself is reaping rich rewards from Win95, especially on sales of the software to PC makers who package it with their machines. ``Our sales are breaking every record in the book,'' says Brad Chase, general manager of Microsoft's Personal Systems Group. Although the software giant's stock is down 20% from its high of 103 last summer, it is expected to report fourth-quarter earnings of $540 million, up 46%, on Jan. 18.
But Win95 hasn't exactly delivered the windfall that many other companies and investors were banking on. Take Symantec. The Cupertino (Calif.) software company made a fat bet on Windows 95, rushing to produce one of the first compatible programs on the market. So far, though, its flagship product, a ``housekeeping'' program called Norton Utilities for Windows 95, has sold far less than the company expected. Citing disappointing sales of its Win95 products, Symantec on Jan. 9 warned investors that its earnings would fall 13% short of estimates.
ON DEAF EARS. Worries about semiconductor overcapacity, though, still appear unfounded. Swept up in the tech-market hysteria last year, chipmakers did, indeed, make investments in expensive new manufacturing facilities. Now that some PC makers are canceling overly optimistic orders, chip prices are falling. But Motorola's 16% decline in fourth-quarter earnings can be blamed partly on a shortage of chip production, not a glut. And most chipmakers and the analysts who watch them believe that the industry will grow by at least the 26% predicted by the Semiconductor Industry Assn. for 1996. In 1995, the industry posted gains of 40%.
In any case, what's bad for the semiconductor industry could be a boon to PC makers: Price drops could boost demand for computers. That's why some analysts say investors are missing the fine points. ``To take everyone down because of an abundance of DRAMs [dynamic random-access memories] is a little premature,'' says John B. Jones Jr., a vice-president at investment bank Salomon Brothers Inc. Terrence Quinn, an analyst with Furman Selz Inc., says concerns about overcapacity and a slow ramp-up for Win95 were raised months ago--but fell on deaf ears. ``A lot of these issues were raised last spring, but the market just sailed through it,'' he says.
Will the optimists be proved right once more? Indeed, tech stocks already were edging up on Jan. 10, and analysts were predicting that the nasty earnings surprises may be over. Then came Apple's latest bombshell. Price-cutting, weaker demand than expected, and thinner gross margins all conspired to beat down revenues, the company said. A new restructuring plan is coming on Jan. 17. And jittery high-tech investors just can't wait.
By Amy Cortese, with Jeffrey M. Laderman, in New York, Robert D. Hof in San Francisco, and bureau reports