Sector Watch: Networkers Slip as Lucent Credit Downgrade Weighs on Group

The networkers were mostly lower in recent market action, a day after telecom equipment maker Lucent Technologies (LU) suffered a credit-rating downgrade.

Shares of Lucent, the third most actively traded stock on the New York Stock Exchange , recently tumbled 7.4% to $7.36, putting a drag on the American Stock Exchange Networking Index, which was off 1.7%.

Networking giant Cisco Systems (CSCO) was down 2.1% to $19.95 in recent activity on the Nasdaq , and Nortel (NT) dropped 2.2% to $11.54. Ciena (CIEN) was lower by 2.7% to $51.58, and Alcatel (ALA), whose talks to merge with Lucent recently fell through, slipped 3.2% to $23.70. Juniper Networks (JNPR), whose earnings warnings last Friday rekindled investors bearishness towards tech stocks, lately climbed 0.1% to $35.66. And Sycamore Networks (SCMR) gained 1.5% to $10.56 and 3Com (COMS) was higher by 2.9% to $5.33.

According to Steven Goldman, a stock market strategist at Weeden, a trading and research firm in Greenwich, Conn., the performance of telecom stocks reflects overcapacity and high debt, which he described as "lingering" problems in the telecom sector.

John Bollinger, the head of Bollinger Capital Management and Equity Trader.com, said the "public is becoming disenchanted" with the failure of the networkers to deliver earnings growth. "The problem really, is that investors see these companies as growth stocks," he said. "And in order to be a growth stock one of those things you must do is grow."

Last Friday, Juniper Networks became the latest networker to wave the warning flag, saying its second-quarter revenue would come in around $200 million to $210 million instead of its previous guidance of $300 million to $330 million. The company also forecast pro forma earnings of 8 cents a share for the quarter, compared with the earnings estimate of 24 cents a share, among analysts polled by earnings tracker Thomson Financial/First Call.

"These [networking] stocks are likely to suffer until one of two things happen," Bollinger said. "Either their valuations are beaten down to the point where they are taken up by value investors, or they start growing again and justifying the valuations they're supporting."

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