The US-UK air strike on Baghdad last night, combined with a shock profit warning from Nortel Networks the Canadian world-leader in fibre-optics, sent stocks plummeting in one of the bleakest days on Wall Street this year.
News of the air strike came in early afternoon, when the market was already being pummelled by the bad news from Nortel, which showed that the state of the communications industry in the United States was worse than anticipated.
Combined with the highest inflation figures for a decade and a major setback for the big pharmaceuticals company Schering-Plough, the bad technology news unleashed the bears, wiping out recent gains on the Dow and Nasdaq.
The Nasdaq Composite finished 4.99 per cent down at 2,425.62 and the Dow at 10,801.31, down 0.83 per cent.
The technology-driven Nasdaq recorded widespread losses in the networking and fibre-optic sectors. Cisco, Dell, Hewlett-Packard, JDS Uniphase, Lucent Technologies, Microsoft, General Electric and AT&T were among hard-hit stocks. Nortel, the world's biggest seller of fibre-optics, said that it would cut 10,000 jobs, an increase of 4,000 on its earlier predictions, because of a faster and more severe economic downturn in the US and a reluctance by US consumers to spend on new equipment.
The Toronto-based company has a major investment in Ireland, North and South, with 2,500 employees in Belfast, 730 in Galway, 50 in Dublin and 45 at Shannon. A Nortel spokesman told The Irish Times that "specific locations for job cuts have not yet been determined". Nortel's value quickly tumbled 33 per cent on the announcement by the company on Thursday evening that for the first quarter it expects a loss from operations of four cents a share compared to the current estimate of a profit of 16 cents a share. The company now expects earnings to grow 10 percent in 2001, a third of the pace it forecast when it reported earnings in January.
"We are now seeing a faster and more severe economic downturn in the United States which we now expect will result in a slower overall market growth of approximately 10 per cent in 2001," said Mr John Roth, Nortel president and CEO. "We are seeing longer-than-expected delays in spending by our US customers as they continue to assess the impact of the economic and market conditions on their businesses."
Nortel's prospects for sales of wireless equipment also dimmed as installation schedules for some European networks were pushed back, Chief Operating Officer Mr Clarence Chandran said. Nortel now expects the network operators to install the equipment in the first half of 2002 instead of the fourth quarter of this year.
Schering-Plough also saw its stock value plummet after it was ruled out of compliance with the rules of the US Food and Drugs Administration. As a result it had to suspend several production lines. The New Jerseybased drug-maker has 500 employees at Brinny, Co Cork, 280 at Avondale Co Wicklow and 100 in Bray Co Wicklow.
The sharp rise in inflation was revealed in the producer price index, which surged 1.1 per cent in January, surpassing expectations for a 0.3 per cent increase. The chief reason was a surge of 11.3 per cent rise in domestic natural gas prices.
However, housing starts rose strongly in January to their highest level in nine months, the government said yesterday in a report that suggested lower mortgage rates were breathing life into the housing market.
