Tech Stocks Drop as Analyst Cuts Ratings
Shares of Internet infrastructure companies dragged the Nasdaq Stock Market lower Monday after an influential analyst downgraded many stocks in the sector.
Juniper Networks (ticker symbol: JNPR), Extreme Networks (EXTR), and Redback Networks (RBAK) all tumbled after Morgan Stanley Dean Witter’s Christopher Stix cut his ratings and lowered his 12-month share-price targets, citing an overall economic slowdown and lowered Internet service-provider spending,
“Recent checks with our companies and field sources suggest that growth continues to be robust,” Stix wrote. However, “we believe that in Q1 2001, growth rates will slow and our companies will face the risk of missing investors’ ‘unpublished’ expectations.”
Stix also lowered his price target for No. 1 computer networking equipment maker Cisco Systems (CSCO) to $75 from $90. After dropping 4% in early Nasdaq trading, Cisco closed at $51.25, down $1.50.
Other tech sector downgrades also contributed to Nasdaq’s 5% loss Monday. After Lehman Bros. downgraded EBay (EBAY), shares of the online auctioneer tumbled 21%, losing $8.94 to $34.50. And Wit Soundview cut its rating on personal computer makers, dropping Dell Computer (DELL) $1.56 to $23.38 and Gateway (GTW) $3.53 to $36.20.
Networking shares have tumbled in recent weeks, following profit warnings that triggered fears of an industry slowdown. Cisco has fallen nearly 10% since it reported its first-quarter earnings this month. The Amex networking index, which includes Juniper and other major networking names, fell 5.6% on Monday and has now lost 36% since Sept. 1.
Shares of Internet router maker Juniper, which Stix cut to “outperform” from “strong buy,” fell $32.50 to $121.88. Stix set a 12-month price target on shares of $200, down from $275.
Extreme, for which Stix cut his price target to $105 from $135, fell $8.31 to $65. Redback, meanwhile, fell $8 to $72.75. The brokerage downgraded the maker of high-speed Internet components to “outperform” from “strong buy,” and cut its 12-month price target to $115 from $150.
Companies that provide fiber-optic components for the network companies also saw losses Monday. Ciena (CIEN) lost $14.50 to $89.94, while Sycamore Networks (SCMR) fell $5.69 to $58.31 and TranSwitch (TXCC) lost $4.94 to $31.19.
On Friday, Dell’Oro Group, which tracks equipment sales by networking vendors, released a report saying the market for optical networking equipment declined 7% in the third quarter of this year compared with the second quarter.
According to the Redwood Shores, Calif.-based consultant, Nortel Networks remained the top vendor in the optical equipment sector, with 43.2% of the $5.5-billion worldwide market in the third quarter. However, sales for Nortel slipped 6% from the second quarter. After the market closed, Nortel issued a statement saying it still expects first-quarter sales in the range of $8.1 billion to $8.3 billion.
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Network Down
Internet infrastructure companies were hammered Monday after an analyst downgraded several of the stocks. The Amex networking index fell 5.6% and is now down 36% since Sept. 1.
Amex networking index, weekly closes and latest.
Monday: 896.97, down 52.87
Source: Bloomberg News
