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September 4, 1988

COMPUTER STOCKS MAKE EXAGGERATED FALLS ON BAD NEWS AS TECHNOPHOBIA GRIPS US INVESTORS

By CBR Staff Writer

Although the broad Wall Street indices are several hundred points higher than the lows they made in the wake of Meltdown Monday, the same is emphatically not true of the computer sector, where DEC, despite sturdy fiscal fourth quarter and full year figures after a hiccup in the the third quarter, is trading at around $92, well below the worst it reached in the wake of the meltdown. IBM, whose prospects certainly don’t look quite as dim as they did a year ago, is at around $110, only $5 above the level it traded at at its worst, although a close of $100 was recorded on one day late last year. Why should IBM trade significantly higher than DEC when their per-share figures are so very similar, and DEC is growing substantially faster than IBM? The one key difference is that IBM pays a substantial dividend, whereas DEC, despite suggestions a year or so ago that it might change its policy, has still never paid a dividend since it was incorporated. But if the blue chips of the sector look dull, nobody much wants to hold second and third line computer stocks, and any whiff of bad news sends the shares into a tailspin. Last Tuesday, Digital Communications Associates Inc, the Alpharetta, Georgia company best known for its Irma 3270-compatible micro-to mainframe links, warned that figures for its fiscal first quarter were unlikely to match the $11.3m net on $63.3m it managed in its fourth quarter – sales are likely to be 15% to 20% down, and profits may not match the $8.9m – on $50.2m – it achieved a year ago. The shares closed at $30.375 on Monday night, but by Thursday’s close had plunged to $21.125, and it is only the latest in a string of computer companies who have seen their shares savaged on mildly negative news, Seagate Technology last month being the most striking one. In the case of Digital Communications, the worry is that its Irma boards still account for 70% of profit, and have given it a 50% share of the market but are now regarded as obsolescent. But acquisitive Digital Communications has been diversifying energetically, and sees a big future in its Crosstalk family of communications products. But the present technophobia among investors is understandable when one looks at today’s figures from Symbolics Inc: the company came to market in 1985 and commanded a big premium on the go-go perception of its artificial intelligence technology: since then, it has been downhill all the way for the Cambridge, Massachusetts company, which fired a third of its staff earlier this year to cut costs. It has managed to reduce operating expenses 40%, but at the cost of reporting a loss for its 1988 fiscal of $44m on turnover of $81.3m, down 22%. It isn’t going to go away, because it still has $11m cash in the bank, and could break even on $17m to $18m a quarter, but its shares haven’t much further to go: they slipped 18.5 cents to $1.25.

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