The Biggest Tech Rally Since October Just Hit a Brick Wall

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Apple Sold 47.5 Million iPhones in Q3

The biggest technology rally since October was knocked cold, as disappointing earnings reports punished Microsoft Corp. and gave Apple Inc. its biggest loss this year.

Five days after Google Inc.’s earnings spurred the largest one-day wealth creation by any U.S. stock, computer and software shares are tumbling. Apple, Microsoft and Yahoo! Inc. retreated on disappointing results. Apple, the world’s most valuable company, slid 4.9 percent, wiping almost $40 billion from its value.

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

“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 $170 billion. “There’s general earnings weakness across the board for the S&P.”

The Nasdaq 100 Index declined 0.7 percent at 10:21 a.m. in New York. The index yesterday halted an eight-day rally of 7.5 percent that pushed it to a 15-year high.

Cracks in the facade appeared before Tuesday. Intel Corp., kicking off earnings by the largest U.S. 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 percent Tuesday after sales fell for a 13th quarter.

Earnings Forecasts

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

Apple slid 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.

The hit to market cap would rival the second-biggest in the company’s history, after a $59.6 billion drop on Jan. 24, 2013. The stock lost $39.5 billion in value on Jan. 28, 2014.

Apple’s share slide today sparked a selloff in the iPhone maker’s suppliers: Cirrus Logic Inc. and Skyworks Solutions Inc. lost 7.9 percent and 4.3 percent, respectively, while Avago Technologies Ltd. and NXP Semiconductors NV slumped more than 4.3 percent.

Apple Recovery

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

Yahoo fell 1.7 percent 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 1.8 percent following its largest-ever quarterly net loss, hurt by a $7.5 billion writedown after the purchase of Nokia’s handset unit failed to rescue the company’s mobile business.

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