Investors Flee Networkers as Profit Warnings Batter Sector
The telecom equipment sector slumped today after
Nortel
(NT)
warned of a sharp shortfall in its second-quarter revenue and more job cuts in a bid to trim costs. The news echoed last night's
confession from optical component maker
JDS Uniphase
(JDSU)
, and brought down the entire networking group.
The
American Stock Exchange Networking Index
recently dropped 3.7%, with both Nortel and JDS reaching 52-week lows shortly after trading began this morning. Nortel, the second most actively traded stock on the
New York Stock Exchange, lately fell 13.3% to $9.21 after hitting a 52-week low of $8.80 earlier. Meanwhile, JDS, which sells its optical components to networkers like Nortel, tumbled 11.9% to $12.17 on the
Nasdaq. The stock hit a 52-week bottom of $11.47 soon after the bell chimed.
"It's happening on a rough day," said Sam Ginzburg, senior managing director of equity trading at
Gruntal
, noting that Nortel's preopen warning coincides with
triple-witching, which tends to create market volatility. "It's going to have a big impact, and it'll spill over."
Lucent Technologies
(LU)
, whose plan to sell two plants to Singapore's
Flextronics
(FLEX) - Get Report
has reportedly fallen through, slipped 5.5% to $6.38. The stock also suffered on Wednesday after
Standard & Poor's
slashed the company's debt rating to junk status, a reflection of Lucent's troubled balance sheet.
Credit Suisse First Boston
downgraded Lucent to hold from buy this morning and widened its 2001 loss estimate, citing the "lack of new product cycle momentum, lagging restructuring efforts relative to plan" and overall softness in the telecom sector.
Cisco Systems
(CSCO) - Get Report
recently dropped 3.3% to $17.11, while
Ciena
(CIEN) - Get Report
lost 6.6% to $41.71.
Juniper Networks
(JNPR) - Get Report
, which warned last Friday of an earnings shortfall in the second quarter, slipped 3.2% to $31.27, while
Corning
(GLW) - Get Report
tumbled 7.5% to $14.81.
Merrill Lynch
lowered its intermediate rating on the fiber-optic cable maker yesterday, saying that sales may be weak over the next few quarters.
Meanwhile,
Alcatel
(ALA)
,
Corvis
(CORV) - Get Report
and
Tellabs
(TLAB)
also touched 52-week lows today.
Sycamore
(SCMR)
,
Redback Networks
(RBAK)
and
ADC Telecom
(ADCT) - Get Report
likewise traded down. The American depositary receipts of
Siemens
(SI) - Get Report
, which stuck to its medium-term forecasts after Nortel warned this morning, lost 3% to $65.48.
"
The sector is going to have to spend time moving sideways or establishing some sort of base before any upward trend can develop," said Paul Cherney, market analyst at
S&P MarketScope
, echoing the
gloomy prognosis for the telecom sector. "It's ridiculous to try to pick a bottom in this situation because the fundamental story is not there," he said. "The fundamentals will serve as an impetus for longer-term money to come in, but they don't have that."