Sector Watch: Nortel Wreaks Havoc on Telecom

Today's selloff has left few pockets of safety, with everything from telecom to paper stocks suffering.

The Nasdaq Telecommunications Index was particularly hard hit, dropping 5.9%. Nortel Networks(NT Quote - Cramer on NT - Stock Picks) was dragging telecom down after the world's largest supplier of telecommunications equipment warned for a third time that it would miss first-quarter estimates. The company, which last month said it would cut 10,000 jobs, also announced it would slash an additional 5,000 people.

Analysts came out in full force today with their knives, hacking away at earnings views and ratings for Nortel. When its problems worsen, concerns rise that rivals and related companies will also be in for still more problems. Today, Ciena(CIEN Quote - Cramer on CIEN - Stock Picks), Lucent(LU Quote - Cramer on LU - Stock Picks), Cisco(CSCO Quote - Cramer on CSCO - Stock Picks) and JDS Uniphase(JDSU Quote - Cramer on JDSU - Stock Picks) were all significantly lower.

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The latest news just amplifies existing problems plaguing the telecom industry, in which slowing demand has tumbled down the chain from mobile phone and networking companies, to parts suppliers, to the chipmakers that build the brains for so many electronics products. In a separate story, TSC's Caroline Humer took a closer look at the problems surrounding the communication chipmakers.

The Philadelphia Stock Exchange Semiconductor Index was recently tumbling 3%.

Bad news from handheld maker Palm (PALM Quote - Cramer on PALM - Stock Picks) was knocking the wind out of its sails and sending rivals stumbling. Palm warned about its future earnings, and investors punished it by sending the stock down 47.8% to $8.09. Handspring(HAND Quote - Cramer on HAND - Stock Picks) was off 27.8% to $11.75, while Research In Motion(RIMM Quote - Cramer on RIMM - Stock Picks) was dropping 16.5% to $20.57. TheStreet.com's Eric Gillin took a look at what analysts were saying about Palm.

Cyclical stocks, which rise when the economy is on the up and up and fall when it's not, were, well, falling. The Morgan Stanley Cyclical Index was down 2.8%.

One cyclical industry is the crazy paper sector. The Philadelphia Stock Exchange Forest & Paper Products Index was lately 3.7% lower.