Midday Report: Tech Stocks Tumble, Nasdaq Recovers

Leading U.S. technology shares slid again Monday, extending a week-long decline, as Cisco Systems, Inc. became the latest stock to fall on reports of a weak quarter.

Overall, the Nasdaq Composite Index was up 0.11 at 2781.41 at midday, erasing a morning loss as gains in Kasper ASL (Nasdaq: KASP) and Portal Software (Nasdaq: PRSF), among others, offset Cisco's big drop.

Cisco, which was down US$2.06 at $36.31 at midday, helped pull shares of fellow equipment makers lower. According to reports from the World Economic Forum in Davos, Switzerland, Cisco's chief executive John Chambers said Monday that the quarter was more challenging than management had expected, as U.S. telecom clients cut back on spending.

Cisco, which provides networking hardware, software and services, has seen demand for its products slip as the U.S. economy started a downturn. The company would be among the first to benefit from a Federal Reserve rate cut, as such a move could spur a rebound in corporate investment.

Ma Bell Struck

A decline in quarterly earnings at telecom giant AT&T Corp. (NYSE: T) also held that sector back. AT&T's stock was down 25 cents at $23.06 in early-afternoon trading. The company said declines in its long-distance and consumer voice services offset growth in its business and broadband divisions during the fourth quarter ended December 31st.

AT&T painted a bleak picture of the current year as well, saying revenue from consumer services will decline, and charges for new products and programs necessary to keep up with the competition will also hurt results.

E-commerce shares, meanwhile, were a mixed bag. The E-Commerce Times Index of 10 prominent dot-coms was up 2.46 percent, with declines in Egghead.com and Webvan Group, Inc. offset by gains in Amazon.com, eBay and Barnesandnoble.com.

Agile Fall

Business-to-business (B2) e-commerce company Ariba, Inc. (Nasdaq: ARBA) was down $8.45 at $36.62 after the company said it signed a definitive agreement to buy Agile Software Corp. (Nasdaq: AGIL) for about $2.55 billion in stock.

Ariba said the acquisition will make it a force in the B2B market, as the company will offer a unified platform for Internet-based commerce and collaboration. Agile Software, meanwhile, was up $5.69 at $48.50.

Fed Action Awaited

Investors are hoping news from the Federal Reserve later this week will give a boost to technology shares. The Fed's Open Market Committee, which sets the central bank's policy on interest rates, will meet Tuesday and Wednesday. A 50 basis-point cut, which would be the second rate cut by the Fed so far this year, is expected.

A rate cut of less than 50 basis points, or no cut at all, would continue to pressure companies like Cisco, which have seen demand for their products fall as clients cut back on investment in new technology out of fear of the economic slowdown.