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Downgrades sock techs
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December 20, 2000: 5:48 p.m. ET
Yahoo!, Cisco, IBM, HP, Micron, Jabil, Foundry hit by slowing economy issues
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NEW YORK (CNNfn) - Technology stocks plummeted Wednesday as a series of downgrades, end-of-season tax selling and mounting fears about an economic slowdown conspired to drive the Nasdaq down to a 20-month low.
The Nasdaq composite index, which is weighed heavily with technology names, ended Wednesday's session 178.94 points lower at 2332.77, a 7.12 percent decline on the day.
Sharp losses in some blue-chip tech stocks also were largely to blame for a 265.44-point decline on the Dow Jones industrial average, which ended the session 2.51 percent lower at 10318.93.
On the Nasdaq, Cisco Systems (CSCO: Research, Estimates) was one of the biggest movers, its shares finishing $5.25 lower at $36.50, a 12.57 percent decline on the day.
 Merrill Lynch analyst Michael Ching on Wednesday downgraded his intermediate rating on Cisco to "accumulate" from "buy," citing what he called "persistent concerns over service provider capital spending, and emerging fears over a slowdown in corporate IT spending."
"We expect these issues above to weigh on Cisco's multiple, at least for the near term," he said, noting that the company's stock is currently trading at 50 times its expected fourth-quarter earnings.
Ching maintained a long-term "buy" rating on Cisco shares, saying that the company remains one of Merrill's favorite long-term picks.
IBM, Hewlett-Packard also hit
At the same time, Merrill soured on PC and printer maker Hewlett-Packard (HWP: Research, Estimates) and tech titan IBM (IBM: Research, Estimates), each of which weighed heavily on the Dow.
Analyst Tom Kraemer downgraded his near term rating on IBM to "neutral" from "accumulate," and signaled that IBM's downward revisions of its revenue and profit expectations may continue into next year.
"We fear that the revisions from October to November may not be the last," Kraemer said in a research note. "Absent this downturn, we would not be downgrading. We are lowering our revenue and earnings estimates for the second half of fiscal 2001."
Kraemer also cut his near-term rating on HP to "neutral" from "accumulate," listing a slowdown in corporate spending and reduced orders for Web servers among the reasons.
"We believe that a concerted effort by HP to drive Linux, improve its channel relationships and continued success with color could materially improve our outlook," Kramer said in a research note. "But we'd like to see those things happen."
IBM shares ended Wednesday's session $4.12 lower at $86, a 4.58 percent decline on the day. HP fell 88 cents, or 2.79 percent, to $30.44.
Selling is widespread
The downturn in the tech sector Wednesday reached well beyond those stocks that were downgraded and drove most of the major segment indexes sharply lower.
The Philadelphia Stock Exchange's semiconductor index, or Soxx, finished 37.35 lower at 539.57, a 6.47 percent decline. Goldman Sachs' computer hardware index fell sharply, sliding 24.52 to 335.91, a 6.8 percent decline on the day.
"Every day you are getting new downgrades and (target) price cuts that add fuel to the downside fire," said Arnie Owen, managing director of capital markets at Roth Capital Partners. "It's end-of-season tax selling and at the same time you have earnings fears."
Elsewhere in the tech sector Wednesday, Cisco competitor Foundry Networks (FDRY: Research, Estimates) lost more than half its value, tumbling $17.62, or 57.55 percent, to $13, after it warned that revenue growth would be less than expected because of capital spending issues related to emerging Internet service providers.
Merrill's Ching said Foundry's pre-announcement is the first acknowledgement that capital spending issues are also impacting suppliers of next generation switching solutions. Ching lowered his intermediate rating for Foundry to "neutral" from "accumulate," and also cut 2001 earnings estimates.
Other Wall Street analysts followed suit, with ABN AMRO downgrading Foundry to a "hold" from "buy," as well as slicing estimates, and Robertson Stephens cutting Foundry to "market perform" from "buy," while also reducing estimates.
Computer memory-chip maker Micron Technology (MU: Research, Estimates) fell $4.94, or 14.21 percent, to 29.81 ahead of its latest quarterly earnings report. The company is expected to release earnings after the bell.
Earlier, Merrill cut its price target on Micron to $70 from $120, citing oversupply of and lagging demand for memory chips.
Shares of handheld computer maker Palm also fell ahead of its latest quarterly results, finishing the session $5.50 lower at $38.12, a 12.61 percent decline. After the closing bell, Palm reported a quarterly profit of $27.5 million on $522.2 million in revenue.
 Contract electronics manufacturer Jabil Circuit (JBL: Research, Estimates) plunged $6.81, or 24.49 percent, to $21, after it reported quarterly results that failed to meet Wall Street expectations. The company also lowered its forecasts for fiscal year 2001 due to slowing demand for personal computers.
The contract electronics manufacturer was downgraded by analysts at SG Cowen to "neutral," but Merrill Lynch analyst Jerry Labowitz kept his "buy" rating and 12-month price target of $40 a share.
"It now appears that JBL will be $150 million light in revenue in the February quarter as a result," noted Labowitz, who lowered his quarterly and fiscal 2001 estimates.
"JBL will still produce a respectable 27 percent in earnings growth this year and its multiple has shrunk to the lowest level we have seen in two years. As a result, we are maintaining our Buy/Buy rating," Labowitz said.
Yahoo! slides on two downgrades
Internet media company Yahoo! (YHOO: Research, Estimates) fell to a 12-month low, sliding an additional six cents to $27.94 after analysts at UBS Piper Jaffray and CIBC Securities cut their ratings on the stock.
UBS analyst Safa Rashtchy sliced his rating to "buy" from "strong buy," and reduced estimates for the fourth quarter and fiscal 2001, citing slowing economic conditions.
"As a result, we believe Yahoo!'s valuation will continue to be under pressure, as long as market uncertainty and potential economic slowdown are dominating the investor's minds," Rashtchy said in a research note.
 CIBC analyst John Corcoran downgraded Yahoo! to a "buy" from a "strong buy" and also cut his 12-month price target to $44 a share from $150, while also lowering 2001 revenue and EPS estimates.
Corcoran said in a research note that Yahoo!'s business model "leaves the company highly exposed to ad revenue at a time when the online advertising environment is deteriorating."
According to Corcoran, Yahoo! derives roughly 70-to-80 percent of its revenue from online ads and although management recognizes the need to diversify revenue streams and develop new sources, it "has made little progress in doing so."
While Corcoran believes that Yahoo! is a "high-quality company that will continue to be one of the dominant players in the online space," he also said it faces several near term challenges and "we do not see any major catalysts that will move the stock significantly higher in the next several quarters."
Corcoran further warns that if Yahoo! lowers guidance for 2001, "we believe the stock price could fall roughly to $16 a share." The stock is now below its 52-week low of $28, and well off its high of $250.06. Yahoo! is due to report results from the December quarter after the closing bell on Jan. 10.
-- from staff and wire reports 
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