Midday Report: Nasdaq Falls as Cisco Forecast Spooks Techs

Technology stocks dragged the Nasdaq Composite Index lower Wednesday, as a disappointing earnings report from Cisco Systems (Nasdaq: CSCO) sent technology stocks plunging.

The Nasdaq index was down 85.18, or 3.2 percent, at 2,579.31. Cisco fell US$4.69 to $31.06, reaching a new 52-week low, after the company reported fourth-quarter results that missed analyst estimates and issued a cautionary outlook for 2001.

The news resulted in a host of analyst downgrades, with firms including Robertson Stephens, Morgan Stanley Dean Witter, Lehman Brothers and Credit Suisse First Boston cutting their ratings on the stock. The news from Cisco, considered an industry bellwether, could mean that the technology slump is not over.

Yet, despite the stormy outlook, Cisco had beaten analyst estimates for 14 consecutive quarters, and the company only missed its net income and revenue expectations for the second quarter by one cent.

Cisco reported that Net income was US$1.33 billion, or 18 cents per share, up from $897 million, or 12 cents per share, in the year-ago period. Analysts had predicted a gain of 19 cents per share.

Fiber Optics, Computers Down

Companies that provide fiber-optic components fell amid reports that Cisco expects a decline in that business. JDS Uniphase (Nasdaq: JDSU) was down $3.56 at $48.25, and SDL, Inc. (Nasdaq: SDLI) was down $13.12 at $183.38. The drops all but erased gains in the stocks Tuesday, following news that the companies had received U.S. government approval to merge.

Computer stocks also fell. Dell Computer Corp. (Nasdaq: DELL) was down 88 cents at $26, and Compaq Computer Corp. (NYSE: CPQ) was down 32 cents at $24.26.

The day's economic news did little to perk up the tech sector. The Labor Department said worker productivity slowed in the fourth quarter to a 2.4 percent annual rate from 3 percent in the third quarter, while labor costs rose.

E-Commerce Issues Slide

E-commerce stocks were also caught in the downdraft. The E-Commerce Times Index of 10 prominent dot-coms was down 3.11 percent at midday, with eToys (Nasdaq: ETYS) and Amazon.com (Nasdaq: AMZN) among stocks leading the decline.

eToys, down 3 cents at 16 cents, slid for a second day after the e-tailer said it would wind down operations by April.

Amazon.com, meanwhile, was down 56 cents at $15.25, amid reports that the company plans to start charging publishers for e-mail book recommendations.

One bright spot in the tech sector was Digital Island, Inc. (Nasdaq: ISLD). The company saw its stock rise 56 cents to $5.31 in midday trading, after announcing it had received a new U.S. patent for its technology to improve the speed and performance of Web sites.