US telecommunications stocks continued their volatile trading yesterday amid news of more industry layoffs, gloomy earnings forecasts and Wall Street downgrades. All the major American high-tech companies were buffeted as the Nasdaq and the Dow Jones skidded to record lows for the year. But stocks staged a late rally, with the Nasdaq ending the session in positive territory, up 1.46 per cent on 2,183,23. The blue-chip Dow Jones trimmed its losses to 0.43 per cent on 10,450.14. Among the companies to issue profit warnings was Gateway, the world number two direct seller of personal computers, which employs more than 1,700 people in the Republic. The San Diego-based company announced that first-quarter profit would fall short of forecasts because of slowing PC sales. The revision is its second in less than two months. In January, Gateway announced that it was shedding 10 per cent of staff worldwide to cut costs. The company was one of the first of the Irish-based PC makers to warn that sales were surprisingly weak in the preChristmas period. Gateway announced a restructuring of its operations, including the possible closing of underperforming retail store locations, planned modification of or exit from certain international markets and write-down related to IT projects, in addition to the previously announced reduction in the workforce and management departures. Acknowledging that his company has gone off track, returning Gateway chief executive Mr Ted Waitt said on Wednesday that the company would break even on operations this quarter before taking new restructuring charges in the face of declining sales.
Paradoxically, the earlier Wall Street sell-off accelerated after news of the first real glimmer of a rebound in the US economy. Consumer spending rose in January at the fastest pace in four months, diminishing any prospect of an early interest rate cut. US stock markets had factored in an emergency rate cut earlier this week amid heated speculation that Federal Reserve chairman Mr Alan Greenspan would announce a change in monetary policy before the next meeting of the US central bank on March 20th. The rise in consumer spending in January was attributed mainly to Americans stepping up purchases of cars. Spending on goods and services increased 0.7 per cent during January after a 0.4 per cent rise in December that was larger than previously reported, the Commerce Department said. However, Ford Motor Company said yesterday its US vehicle sales fell 11 per cent in February.
The rise in spending was accompanied by a pickup in inflation, which will also work against aggressive rate cutting by the Federal Reserve. The personal consumption expenditures price index, a measure of inflation watched by the Fed, rose 0.5 per cent in January after rising by 0.2 per cent in December. For the fourth quarter, the index rose at a 1.9 per cent annual rate, up from 1.8 per cent in the third quarter. Adding to a growing wave of lay-offs, WorldCom, the second-biggest US long-distance provider, announced it would fire 6,000 workers, or about 7 per cent of its global workforce, as part of plans to slim down before a corporate realignment.
