U.S. Stocks Fall on Accounting Concerns; Tyco, Enterasys Drop
By Danielle Sessa


New York, Feb. 4 (Bloomberg) -- U.S. stocks fell as new disclosures by Tyco International Ltd. fueled concern that companies are misstating earnings. Microsoft Corp. led the Nasdaq Composite Index to its lowest level since November.

Tyco extended its slide this year to 45 percent after the conglomerate said it spent $8 billion in three years on more than 700 purchases it didn't make public. Enterasys Networks Inc. plunged after the computer-network switch maker said it's being investigated by the Securities and Exchange Commission and is delaying an earnings report.

``Accounting is certainly a concern and earnings quality is certainly a concern,'' said Kathy Cole Dodd, manager of the $1.3 billion One Group Large Cap Value Fund. ``Everyone is waiting for the next shoe to drop'' in this accounting scandal, she said.

The Standard & Poor's 500 Index fell 18.68, or 1.7 percent, to 1103.52. The Nasdaq lost 43.71, or 2.3 percent, to 1867.53. The Dow Jones Industrial Average dropped 132.36, or 1.3 percent, to 9774.90.

Microsoft declined after Chairman Bill Gates said Sunday he doesn't expect much improvement in the economy or technology companies this year. Ciena Corp. shares dropped.

Gates ``is dead right,'' said Tony Robinson, chief investment officer at Attica Asset Management in London, which oversees $200 million. ``We're not at all optimistic about technology stocks for the next few quarters. It could be next year before you get an upturn.'' Robinson favors consumer-related shares.

`Somberness Will Stay'

Microsoft, the biggest software maker, fell 96 cents to $61.70. Gates, who attended the World Economic Forum in New York, yesterday said he doesn't expect ``any big uptick in the next year'' in technology shares. ``Somberness will stay.''

Some executives attending the Forum said they doubted a global economic recovery was underway.

Martin Sorrell, chief of the advertising company WPP Group Plc., expects sluggish economic growth to keep a lid on ad spending this year. Stefan Pichler of Thomas Cook AG, said bookings at Europe's No. 2 travel company this year will be ``just below'' a year ago. Deutsche Bank AG Chief Rolf Breuer said business didn't pick up last month at Europe's largest lender by assets size.

The S&P 500 has climbed 15 percent since touching a low in September on speculation lower borrowing costs, increased government spending and falling energy prices would lift the economy out of recession.

Still, the index fell a third week in four last week as reports manufacturing improved less than expected and the economy lost more jobs than predicted suggested a recovery may be muted.

``We need to get more good news on the economic front overall and we need to see that the accounting (scandal) is limited in nature,'' before stocks can rally, said Banc One's Dodd. She has been buying shares of McDonald's Corp.

Some 638 million shares traded on the New York Stock Exchange by 12:15 p.m., 16 percent more than a week ago. More than three stocks fell for every two that rose on the Big Board.

Tyco Falls

Tyco fell $3.42 to $32.20 and was the most active stock, with 29 million shares traded. The company said it didn't announce the acquisitions, which represented 37 percent of the $11.3 billion Tyco spent in the year ended Sept. 30, because they weren't ``material compared with the company's total assets,'' Chief Financial Officer Mark Swartz said.

Concern began to mount that corporate accounting doesn't provide a true earnings picture after energy trader Enron Corp. hid at least $1 billion of losses in 3,000 partnerships. Enron filed for the largest bankruptcy in U.S. history on Dec. 2.

Skittishness about accounting practices ``is kind of a grass fire sweeping through the land,'' said Timothy Leach, chief investment officer of Wells Fargo Private Asset Management, which oversees $75 billion in San Francisco.

Leach sold his Tyco stake last week even though the stock's 44 percent slide this year has made it attractive to value investors, he said. Sometimes one has to ``get out of the way of the herd,'' he said.

GE, AIG Drop

Companies that have grown through acquisitions such as General Electric Co. and American International Group Inc. extended declines.

General Electric, which makes washing machines and owns the NBC television network, slid $1.65 to $35.20 and has lost 12 percent this year. It contributed the most to the drop in the S&P 500. AIG, the largest insurer, slid $1.25 to $72, bringing its year-to-date decline to 9.2 percent.

Enterasys Networks fell $5.83, or 54 percent, to $4.97. The company said it ``and certain affiliated companies'' are under investigation by the SEC. It didn't say why.

Formerly known as Cabletron Systems Inc., Enterasys delayed reporting fourth-quarter results because it is reviewing a $4 million order booked by its Asia Pacific operations. The delay is ``apparently unrelated'' to the SEC probe, the company said.

Riverstone Networks Inc., a computer-networking equipment maker that was spun off from Enterasys last year, dropped $1.92 to $13.80. Riverstone said it isn't part of the investigation.

Williams, Amazon.com

Williams Cos. shed $1.90 to $17.10 on concern the energy trader's corporate credit and debt ratings may be cut by Standard & Poor's. The company plans to sell assets to maintain its investment-grade debt grade and take other steps to shore up its balance sheet.

Amazon.com Inc. fell 75 cents to $12.98. The largest Internet retailer pledged almost $167 million of its marketable securities as collateral for obligations that aren't on its balance sheet, the Wall Street Journal said in its ``Heard on the Street'' column, citing the company's annual report.

Priceline.com Inc. shed 88 cents to $5.44. The third-largest Web travel seller reported a loss of 1 cent a share, while analysts expected the company to break even. Priceline.com projected first-quarter revenue below analysts' targets.

Ciena dropped $1.15 to $10.85. ABN Amro analyst Kenneth Leon said the maker of gear used in fiber-optic networks may need to reduce costs to break even this year as its competitors have lowered their forecasts.

Leon lowered the stock to ``hold'' from ``add.''

Financial Shares Fall

Financial stocks slipped after Breuer of Deutsche Bank said business hasn't picked up this year.

Morgan Stanely Dean Witter & Co., the second-largest U.S. securities firm, dropped $1.86 to $51.55. Bank of America Corp., the third-biggest bank, lost $1.30 to $60.06.

Calpine Corp. fell 99 cents to $10.31. Merrill Lynch & Co. analyst Elizabeth Parrella said the slowdown in electricity and gas markets may last another year or 18 months.

``Calpine may have a tougher roe to hoe than some others, in view of high leverage and tight cash situation,'' Parrella wrote in a note to clients. She cut her intermediate-term rating to ``neutral'' from ``strong buy'' and her long-term rating to ``buy'' from ``strong buy.''

Computers, Chips Rise

Hewlett-Packard climbed 45 cents to $22.45. The computer and printer maker said earnings this quarter will be ``substantially above'' analyst estimates of 16 cents a share and revenue will be ``up moderately'' from the previous quarter.

Compaq Computer Corp., which Hewlett-Packard is planning to purchase, gained 16 cents to $12.26.

Semiconductors rose after Goldman, Sachs & Co. analyst James Covello said orders at chip-equipment companies will rise sequentially in the next couple of quarters and lift share prices. He raised his rating on four stocks including KLA-Tencor Inc. and Novellus Systems Inc. and increased his industry recommendation to ``market overweight'' from ``market weight.''

KLA-Tencor, the biggest maker of chip-inspection tools, gained $1.55 to $58.23 and Novellus, which makes tools that build circuits in chips, advanced 81 cents to $42.66. Applied Materials Inc., the biggest chip-equipment maker, jumped $1.57 to $44.52.

Lowe's Cos. rose $1.33 to $47.03. The second-largest home- improvement chain raised its fourth-quarter earnings forecast as sales increased because of warmer-than-expected weather. The company said same-store sales growth will exceed its 3 percent to 5 percent target, and profit will beat its estimates of 22 cents to 24 cents a share.

The Russell 2000 Index of smaller stocks dropped 3.75, or 0.8 percent, to 476.29. The Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, declined 122.02, or 1.2 percent, to 10,368.15


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