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September 22, 2000

Intel Whacks Nasdaq: Chip Behemoth Off 23.4% After Warning
By Julie Rannazzisi,

Intel is the Last Straw ... Weiss comments

NEW YORK - The ripple effects of Intel's sales warning are sorely being felt in the market Friday, as the Nasdaq took a 5.4% nosedive out of the gate. The Dow Industrials, of which Intel is a component since late 1999, checked in with triple-digit losses.

Bellwether Intel announced late Thursday that its third-quarter revenue will fall below its previous expectations due to waning demand in Europe. Intel (INTC) tumbled $14.48, or about 24%, to $47. Intel said revenue would be 3 to 5% higher than the $8.3 billion it recorded in the second quarter and that gross margins are expected to be 62%, which is below previous expectations of 63 to 64%.

The closely-watched Philadelphia Semiconductor Index ($SOX) tumbled 7.4%. Among other chip stocks suffering heady losses: Advanced Micro Devices (AMD), down $2.93 to $24.63, Micron Technology (MU), off $8.50 to $54, and Motorola (MOT), down 94 cents to $32.06.

All sectors dripped in red ink, with only the market's traditional defensive areas -- the drugs and the utilities -- reaping some buying interest.

The Dow Jones Industrials Average ($DJ) dropped 115 points, or 1.1%, to 10,652.

The Nasdaq Composite ($COMPQ) plunged 205 points, or 5.4%, to 3,622 while the Nasdaq 100 Index ($NDX) dove 191 points, or 5.2%, to 3,526.

The Standard & Poor's 500 Index ($SPX) subtracted 1.8% while the Russell 2000 Index ($RUT) of small-capitalization stocks dropped 2.2%.

Separately, volume checked in at 67.7 million on the NYSE and at 152 million on the Nasdaq Stock Market. Market breadth was horrible, with losers squashing winners by 14 to 5 on the NYSE and by 25 to 4 on the Nasdaq.

Intel's after-the-bell earnings warning yesterday was the straw that broke the camel's back. Intel, a member of three major indexes, the Dow, the Nasdaq Composite, and the S&P; 500, was the catalyst that sent all three indexes into a tailspin within the first minute of trading.

Intel joined a host of other companies that announced expectations of weaker earnings in the third quarter. The companies cited falling demand, high oil prices, and a weak euro as reasons for their dismal outlook. As the earnings warnings pile up, look for stock market casualties to start piling up as well.

We won't be surprised to see Wall Street send out its legion of spin doctors to ease the panic that's taking over the market. They'll say that the slowdown in PC sales is isolated to Europe, that the U.S. government is going to release strategic petroleum reserves to halt rapidly rising oil prices, and that the intervention staged by central banks will help the euro recover and bolster company earnings.

Don't be fooled.

First of all, the cause of Intel's woes -- lower PC sales -- is not isolated to Europe. PC sales have faltered world-wide. Second, the U.S. government will be very cautious in deciding to put any oil on the market. Any intervention on their part will severely hamper future efforts to persuade Saudi Arabia and the rest of OPEC to increase output. Finally, the intervention on the euro, if it succeeds, will not help Wall Street. European investors will pull their investments out of the U.S. stock market if the euro strengthens against the dollar. Plus, a stronger euro has the added affect of damaging the U.S. bond market as well.

Stay on alert. The market plunge may stall out today, but Wall Street is not likely to make a full recovery -- and it's only setting itself up for an even bigger fall.

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