Shares of America Online Inc. jumped almost 12 percent yesterday as investor fears of a price war with Microsoft Corp. subsided.
Microsoft said on Thursday that it would raise its monthly Internet access fee by $2 to $21.95, the same as Dulles-based AOL charges. Several weeks ago, Microsoft executives suggested that the company was thinking about moving in the opposite direction, cutting fees to more aggressively compete with market-leading AOL. Analysts had worried that such a move could have forced AOL to cut its prices or risk subscriber defections.
AOL, whose stock rose 10 to 97 1/2, was the technology sector's best performer yesterday. The Nasdaq composite index fell 9.42 points to 2740.41 yesterday, after slipping 65 points in early trading. The Dow Jones industrial average fell 39.26, to 10,279.33, and the Standard & Poor's 500-stock index fell 3.05, to 1277.36
On Thursday, the Nasdaq plummetted 108 points, its fourth-biggest decline, after Microsoft President Steven A. Ballmer said technology stocks were overvalued.
Leading the Nasdaq drop yesterday was chipmaking giant Intel Corp., which fell almost 1-27/32 to 75-21/32, after an analyst with BancBoston Robertson Stephens said orders for 2 million Intel chips have been canceled this quarter due to slow demand for personal computers.
Still, investor fears did not extend to PC manufacturers themselves. Compaq Computer Corp. fell 7/16 to 22 3/8, Dell Computer Corp. gained 11/16 to 43-11/16, International Business Machines Corp. rose 3 to 125 and Gateway Inc. climbed 1/8 to 43 1/2.
Analysts said that had Microsoft chosen to pursue a low-cost strategy, rather than raise its access fee, its marketing clout could have presented a potent threat to AOL.
"In the short term, this is good news for AOL," said Bill Whyman, an analyst with Legg Mason's Precursor Group in Washington.
But Whyman said that AOL still faces growing competition in the free access arena, particularly from NetZero Inc., a California firm that offers no-cost Internet access in exchange for making consumers view online advertisements. NetZero's shares rose 82 percent yesterday in its first day of trading.
But other analysts dismiss such threats. "The NetZero business model is not likely to extend into the core of AOL's market," said Paul Merenbloom, an analyst with Prudential Securities Inc.
Industry analysts also continued to worry about the impact of the Taiwan earthquake on supplies of semiconductors and other electronic components to U.S. firms. About 10 percent of the world's chips are made on the island as well as more than three-quarters of the motherboards, the guts of a personal computer. Analysts said production problems would cut into what had been expected to be a strong fourth quarter for PC sales.