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 aweak 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 offellow equipment makers lower. According to reports from the World Economic Forum inDavos, 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 seendemand 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 thatsector 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 revenuefrom consumer services will decline, and charges for new products andprograms 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 10prominent dot-coms was up 2.46 percent, with declines in Egghead.com andWebvan Group, Inc. offset by gains in Amazon.com, eBay andBarnesandnoble.com.

Agile Fall

Business-to-business (B2) e-commerce company Ariba, Inc. (Nasdaq: ARBA) wasdown $8.45 at $36.62 after the company said it signed a definitive agreementto 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 givea boost to technology shares. The Fed’s Open Market Committee,which sets the central bank’s policy on interest rates, will meet Tuesdayand Wednesday. A 50 basis-point cut, which would be the second rate cut bythe Fed so far this year, is expected.

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

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