Wall Street Beat: Stormy ride for tech

Conflicting economic news for the year-end buying season rocked the technology sector this week as companies as diverse as Dell, eBay, E-Trade, and Sycamore Networks gave IT investors news for cheer and concern.

Good reports about third-quarter U.S. economic growth and Cyber Monday e-commerce sales were offset by more bad news on the housing front. The Office of Federal Housing Enterprise Oversight reported that home prices marked their first third-quarter decline in 13 years, a 0.4 percent drop.

A soft housing market and mortgage defaults by borrowers have sparked tumult in credit markets and the financial services sector. Investors fear that a resulting tightening of credit will dampen consumer and business buying, even for IT vendors.

E-Trade Financial, which gained a reputation as a tough competitor in the online-brokerage arena, Thursday announced a $2.55 billion cash injection from Citadel Investment Group. E-Trade needs the cash after avoiding collapse in the housing crisis. The deal may resuscitate E-Trade, but investors still appear scared. Company shares were down by $0.46 Thursday to close at $4.82. CEO Mitch Caplan has been ousted, replaced temporarily by President Jarrett Lilien.

Also Thursday, Dell reported solid third-quarter results, helped by falling DRAM prices. Net income came in at $766 million, or $0.34 per share, up 9 percent from 2006, on revenue of $15.65 billion, up 27 percent from last year. Though income fell short of the $0.35 per share forecast by analysts polled by Thomson Financial, sales did better than the $15.36 billion forecast.

Dell has slipped behind Hewlett-Packard as the world’s number-one PC vendor, but analysts recently have cheered Dell’s efforts to expand from its traditional direct-sales approach to work with the retail channel. Citi Investment Research, for example, reiterated its Buy rating on Dell shares. After Dell shares rose during the day, however, they fell back down in after-hours trading, dropping by $1.81 to trade at $26.30 within an hour after the earnings statement.

This past earnings season, vendors reported generally good third-quarter results. The Commerce Department this week reported that third-quarter U.S. economic growth was 4.9 percent, more than any other quarterly gain since 2003. Looking ahead to the holiday buying season, IT and Internet-company investors were cheered by a comScore Networks study Tuesday that reported a record for one-day U.S. online sales on Cyber Monday — the first Monday after the Thanksgiving holiday. Shoppers made $733 million in purchases, a 21 percent jump over year-earlier sales.

The report boosted technology company shares broadly, with, notably, eBay shares gaining $1.23 to close at $33.75 Wednesday.

But economic news was mixed, and IT shares were volatile throughout the week. For example, though aspects of the networking market this year showed some surprising strengths, continuing turbulence and competitive pricing pressure hit Sycamore Networks, which Wednesday reported quarterly sales of $38 million, up from $34.8 million a year ago, but lower than the $41 million analyst forecast.

Though Sycamore CEO Dan Smith stressed sequential growth in the company’s multiservice core switching business, expectations have been high for networking growth areas like fiber optics. Sycamore shares declined by $0.09 to close at $3.81 Wednesday and slipped again Thursday as general market turbulence hit the IT sector after a few days of gains on the Nasdaq, home to a range of bellwether tech companies.