Bloodletting Continues in the Tech Sector
Technology stocks suffered another fierce pounding on Wednesday, after fiber-optics giant Nortel Networks reported sales growth that fell short of expectations.
The latest slide, which pulled the Nasdaq composite index down 5.6%, left some analysts questioning whether there were any “sacred cows” left to kill in the battered tech sector.
That, at least, would be the optimistic view of things.
Nasdaq’s 190.22-point plunge, to 3,229.57, was its worst point loss since May 23, as investors dumped tech issues mostly across the board. Trading was heavy.
But the index still held above its closing low of 3,171 last week, before the sharp rally in tech shares last Thursday and Friday.
The rest of the market also was down Wednesday, but the losses were much more moderate. The Standard & Poor’s 500 index fell 2.4%, and the S&P; small-cap index fell 1.9%.
The Dow Jones industrials eased 66.59 points, or 0.6%, to 10,326.48, as blue chips mostly held up in a “flight to quality” amid the tech rout.
Nortel’s announcement late Tuesday that its optical networking systems sales rose 90% in the third quarter disappointed investors, some of whom expected growth of 125% or more.
Though most companies would savor Nortel’s growth rate, Wall Street had been betting that the fiber-optics sector would be one area that would continue to pleasantly surprise investors with faster-than-expected growth.
Nortel tumbled $18.44 to $44.88, and fiber-optic rivals also were crushed. JDS Uniphase slumped $24.06 to $71, Ciena slid $27 to $108.38, Corning dived $16.63 to $76.88 and Lucent Technologies lost $1.50 to $20.13.
Nortel blamed its shortfall on a slowdown in sales growth, limitations on how fast it could install equipment and an inventory glut on the part of some customers.
Investors, already battered by a flurry of growth warnings from personal computer and semiconductor companies since Sept. 1, fear that Nortel’s report could be just the beginning of trouble for fiber-optics suppliers.
“When you have an issue like demand being raised, it calls into question the entire sector,” said Arthur Hogan, chief market analyst at Jefferies & Co.
But some took a more positive view of the tech sector’s outlook.
“We’re in the final stages of knocking down the last big technology stocks,” said Bill Meehan, chief market analyst at Cantor Fitzgerald & Co. “We’ve already trashed the Internet stocks and then the Intels and Microsofts. Now we’re down to the fiber-optics stocks.”
In other markets, the euro currency hit new lows against the U.S. dollar and Japanese yen as traders speculated that chances are fading that central banks will buy the currency to prop it up, as they did a month ago.
The euro ended at 82.8 U.S. cents in New York, down from 83.7 cents Tuesday.
Gold prices sank with the euro, with near-term futures in New York off $3.90 to $266.20 an ounce.
In the Treasury market, yields rose despite stocks’ sell-off. Usually, some money coming out of stocks goes into bonds, but that didn’t help the Treasury market Wednesday.
Among Wednesday’s highlights:
* The computer-chip sector was hard hit. Applied Micro Circuits, a maker of communications chips that gets a fifth of its revenue from Nortel, plummeted $50.31 to $148.
Also off sharply were PMC-Sierra, down $37.75 to $161.13, and Vitesse Semiconductor, down $11.50 to $56.
* Other tech losers included IBM, down $3.88 to $87.56; Sun Microsystems, down $9.19 to $108.63; Broadcom, down $21.13 to $217.88; and EMC, down $5.69 to $90.
Among the few tech winners was Amazon.com, up $2.31 to $31.88 in the wake of Tuesday’s strong earnings report.
* Health-care stocks appeared to attract some of the money exiting tech, as investors looked for safer ideas. Also gaining were some consumer-products giants, including PepsiCo, up $2.38 to $48.50; Procter & Gamble, up $1.31 to $74.94; and Avon, up 25 cents to $47.38.
* Some financial services stocks also were winners. Chubb gained $1.94 to $81.88 and Washington Mutual added 81 cents to $42.25.
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Market Roundup: C12, C13
