Renewed Profit Concerns Drag Down Net Equipment Sector
Companies that make equipment for Internet and telephone networks took another hit Monday as profit concerns continue to dog the sector.
The biggest decliners included Terayon Communication Systems (ticker symbol: TERN), which fell 61%--$8.31 to $5.25--after the No. 2 cable-modem maker said it will have a fourth-quarter loss because its customers have surpluses. The Bloomberg U.S. Internet infrastructure equipment index fell 10%.
Other shares that slumped included Avanex (AVNX), down $6.31 to $68.88; Broadcom (BRCM), off $17.69 to $105.44; CacheFlow (CFLO), off $5.06 to $43.94; Efficient Networks (EFNT), down $3.75 to $14.56; Extreme Networks (EXTR), down $17.31 to $54.94; Foundry Networks (FDRY), off $5.44 to $33; Proxim (PROX), off $6.56 to $38.13; Redback Networks (RBAK), down $11.69 to $71.31; and Scientific-Atlanta (SFA), down $5.44 to $39.94.
There is concern that a slowing U.S. economy, high equipment inventories and declining orders could reduce sales and profit at many Net infrastructure companies. Many of the stocks still sell for high price-to-earnings ratios, even after their sharp declines this year.
“The smart money is getting out,” said Fred Hickey, publisher of the High-Tech Strategist investment newsletter in Nashua, N.H. “It’s a matter of when, not if, [the infrastructure business is] going to have a hiccup. That’s why these stocks are so under pressure.”
Terayon declined to comment further beyond a statement that said customers have enough inventory to last them through next year, spokesman John Giddings said.
The average stock in the tech-dominated Nasdaq composite index is down 48% from its peak, but the index still trades at 103 times the last 12 months’ earnings per share, according to Bloomberg data.
That P/E is more than five times the price-to-earnings multiple of 20 in the Dow Jones industrial average, which reflects a broader array of industries.