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Sun, Corning sock techs
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August 30, 2001: 4:34 p.m. ET
Pessimistic business forecast, layoff news prompt selloff in sector
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NEW YORK (CNNfn) - The stocks of data-networking and telecommunications equipment makers fell Thursday following a more pessimistic business outlook from Sun Microsystems.
News of more layoffs at Corning, a top supplier of the fiber-optic cable used in high-speed communications networks, also contributed to the negative tone.
Tech stocks elsewhere continued to fall as well, extending the week's earlier losses as investors looked for signs of strengthening corporate profits but could find none.
The Nasdaq composite index, which is weighted heavily with technology names, fell 51.51 points to 1,791.66, a 2.8 percent decline on the day. The technology segment indexes moved mostly lower as well.
Shares of Sun Microsystems (SUNW: down $2.36 to $11.07, Research, Estimates) were the most actively traded on Nasdaq, falling nearly 18 percent after its mid-quarter financial update. After the close of trading Wednesday Sun, a leading supplier of servers – high-powered computers used to power corporate networks and Web sites – warned that it likely will lose money in the current quarter, where previously it had forecast break-even results.
As have most companies that make data-networking and telecommunications equipment, Sun's business has been hurt by a slowdown in capital spending, especially among service providers in the United States who, faced with a slowing and uncertain economy, have either deferred or cancelled many of their new equipment orders.
During a teleconference, Sun's chief financial officer said business conditions were especially weak in Europe and Japan. He did not provide specific financial targets, saying only that it is unlikely the company will achieve $3.7 billion in revenue, which would put it at the break-even level.
Before the call, analysts polled by First Call generally had expected Sun to turn a profit of 2 cents per share on $3.8 billion in sales.
Several analysts raised red flags on Sun this week, trimming their revenue and earnings estimates ahead of the mid-quarter update. As it turned out, some had to trim them even further after the call.
Laura Conigliaro of Goldman Sachs, for example, had reduced her forecast to a penny per share profit on $3.7 billion in sales, where previously her estimates had been in line with the First Call consensus. On Thursday, Conigliaro pared back her expectations even more, saying she now expects Sun to lose 2 cents per share on $3.6 billion in revenue.
"Sun's intra-quarter call confirmed the fairly grim picture of demand that we have been seeing," Conigliaro wrote in a note to clients Thursday.
"More importantly, it appears that the December quarter will lack the seasonal punch that Sun and others normally see, suggesting that the first signs of a recovery may not come until June," Conigliaro added.
Merrill Lynch's Thomas Kraemer, ahead of Sun's call Wednesday, trimmed his earnings estimate to 2 cents per share and his revenue estimate to $3.6 billion. He maintained those targets after the call, but noted that it shed little new light on the overall demand picture.
"It is hard to hear Sun's commentary and have any confidence that spending will reaccelerate or that numbers for most of the enterprise sector may not need to come down again," Kraemer said in research note. "The demand jury is still out, and that's the key issue."
The stocks of Sun's key competitors moved lower as well.
Shares of IBM (IBM: down $3.77 to $100.36, Research, Estimates), which has been turning up the heat on Sun in the server market with its "eServer" line of products, fell 3.6 percent. Hewlett-Packard (HWP: down $0.55 to $23.40, Research, Estimates), which has been targeting Sun's core market with its recently introduced "SuperDome" server, fell 1.4 percent.
Elsewhere among networking-equipment makers, shares of Cisco Systems (CSCO: down $1.07 to $16.01, Research, Estimates), a leading supplier of the hardware used to guide traffic over the Internet, fell more than 6.3 percent. Cisco competitors Juniper Networks (JNPR: down $1.11 to $14.43, Research, Estimates) and Redback Networks (RBAK: down $0.20 to $3.97, Research, Estimates) finished lower as well.
Among the leading telecommunications equipment makers, shares of Nortel Networks (NT: down $0.25 to $6.27, Research, Estimates) slipped 3.4 percent. Ciena (CIEN: down $1.00 to $17.54, Research, Estimates) shares fell 5.4 percent. Shares of Lucent Technologies (LU: down $0.50 to $6.67, Research, Estimates) ended the session 7 percent lower.
At the same time, shares of Corning (GLW: down $2.55 to $12.05, Research, Estimates) fell more than 16 percent. The company, a top supplier of fiber-optic cable, said late Wednesday it is cutting 1,000 jobs from its optical fiber business in response to slowing orders, bringing total job cuts since the start of the year to 20 percent of its work force.
The American Stock Exchange's networking index fell 13.55 points to 280.56, a 4.6 percent decline.
Software, chip stocks also sink
The stocks of companies that specialize in making the software used in data-networking systems also felt the impact.
Adding to the pressure there were cautious comments from Goldman Sachs analyst Thomas Berquist, who cut his estimates on four networking software suppliers.
"The evidence we have gathered recently leads us to believe that despite better linearity than most application software companies, the infrastructure software companies are working harder than we previously thought to make their September numbers," Berquist said.
He trimmed his earnings estimates on: Veritas Software (VRTS: down $3.34 to $28.37, Research, Estimates); Rational Software (RATL: down $0.06 to $13.96, Research, Estimates); Mercury Interactive (MERQ: down $2.37 to $26.62, Research, Estimates); and Legato Systems (LGTO: down $0.16 to $7.89, Research, Estimates).
Elsewhere among software makers, shares of Microsoft (MSFT: down $3.31 to $56.94, Research, Estimates), the market leader, were trading 4.4 percent lower. The company's business practices came under more scrutiny in Europe Thursday after the European Union expanded its investigation into Microsoft Corp.'s business practices.
The Goldman Sachs computer software index ended the session 7.16 points lower at 154.11, a 4.4 percent decline on the day.
Chip stocks finished mostly lower as well. The Philadelphia Stock Exchange's semiconductor index fell 10.47 points to 559.35, a 1.8 percent slide.
Internet stocks also moved broadly lower, pushing the Goldman Sachs Internet index 1.3 points lower to finish 1.4 percent lower at 91.19. 
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