Tech rally unravelling with Apple poised for US$50 billion slump

[NEW YORK] The biggest technology rally since October was knocked cold, as disappointing earnings reports punished Microsoft Corp and left Apple Inc in danger of its worst-ever loss of market value.

Five days after Google Inc's earnings sparked the largest one-day increase in market capitalization, computer and software shares are tumbling. Apple, Microsoft and Yahoo! Inc retreated on disappointing results. Apple, the world's most valuable company, dropped 6.7 per cent, a slump that would wipe more than US$50 billion from its value.

Hopes were high for the industry as earnings season began, with shares in the sector leading a rebound in US equities after overseas tensions eased. The Nasdaq Composite Index rallied to an all-time high on July 17 after Google surged 16 per cent, adding US$65 billion to its market cap.

"The expectation coming into Apple earnings was 'boy, they're going to lift all boats!'" said Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co, which manages about US$170 billion. "There's general earnings weakness across the board for the S&P." Futures on the Nasdaq 100 Index declined 1.2 per cent at 6 pm in New York. The index slid 0.1 per cent in the regular session, halting an eight-day rally of 7.5 per cent that pushed it to a 15-year high.

Cracks in the facade appeared before Tuesday. Intel Corp, kicking off earnings by the largest US technology companies last week, said it expects the personal-computer market to fall further than expected, spotlighting the challenges for chipmakers. International Business Machines Corp dropped 5.9 per cent during regular trading Tuesday after sales fell for a 13th quarter.

At the start of the year, analysts forecast the technology sector would deliver a 13 per cent increase in profit during the second quarter, according to a Bloomberg survey. Those expectations were lowered to a 2.4 per cent gain as of July 17.

Apple slid in late trading after iPhone shipments for the fiscal third quarter and the company's revenue forecast for the current period missed analysts' projections, raising questions over whether demand for the device has peaked.

If the stock sinks that much in regular trading, the hit to market cap would be the second-biggest in the company's history, after a US$59.6 billion drop on Jan. 24, 2013.

Apple had recovered almost 10 per cent in the past two weeks leading up to earnings, after being pushed to the brink of a correction. The shares dropped 9.7 per cent from an all-time high in February through July 9, erasing US$83 billion of market value, amid concern a rout in China's market would leave consumer with less money to buy gadgets.

Yahoo fell less than 1 per cent after forecasting sales in the current quarter below analysts' estimates, a sign Chief Executive Officer Marissa Mayer's turnaround effort is still a work in progress.

Microsoft slid 3.1 per cent following its largest-ever quarterly net loss, hurt by a US$7.5 billion writedown after the purchase of Nokia's handset unit failed to rescue the company's mobile business.

BLOOMBERG