Net Sector Remains Weak, but Recovers From Earlier Losses

Many are treating the weakness as a buying opportunity. Extreme Networks is still down, but back up from its session lows.
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In the Internet sector, weakness is often seen as an opportunity rather than anything terribly bad. That appears to be the case today. Internet Sector

index was down 15.07, or 1.6%, at 958.55 in recent trading after dropping as low as 924.88 early in the session. Nothing specific triggered this morning's selloff, other than a market that was

technically overbought and in need of a breather. And others saw the early losses as a buying opportunity with the sector on fire lately.

One of the largest decliners in the sector,

Extreme Networks

(EXTR) - Get Report

, was maintaining losses, but off session lows. Extreme was recently down 20, or 21%, at 74 1/4 after trading as low as 65 after some cautious comments from

Morgan Stanley Dean Witter

. Traders appear to have a more "extreme" reaction to the note than what may have been intended.

Though Morgan analyst Chris DePuy did not return a phone call, his note doesn't appear to be overly negative. DePuy wrote that he expects less upside to the fourth quarter than in prior quarters. He made no change to his fourth-quarter revenue estimate of $52.6 million, or a 12% increase from the third quarter, with expected earnings per share of 9 cents. And while he also didn't make changes to his 2000 estimates, he wrote that orders for products available for shipment in the first quarter "appear strong." Morgan has done underwriting for Extreme Networks.

Erik Suppiger, an analyst with

Hambrecht & Quist

who covers Extreme, told


that he spoke with an Extreme Networks official who indicated that customers were merely deferring orders from the fourth quarter of this year to the first quarter of next year, when Extreme's products will be upgraded.

"I don't anticipate a shortfall, but the reported numbers will be more in line with estimate projections than in previous quarters where they have had blowout quarters," said Suppiger. H&Q has done underwriting for Extreme Networks.

Suppiger said he thought the selloff was "a little overdone," but with the high multiples that stocks like Extreme have, "anything less than perfect takes a whack out of the stock." However, he also said that the price of the stock is predicated on long-term fundamentals, which he claimed were not changed. And while other infrastructure stocks have moved lower in sympathy with Extreme, Suppiger said that fundamentals of other companies should not be changed.

Paul Johnson, an analyst at

Robertson Stephens

, which also has done underwriting for Extreme, told


he just put out a call to his sales force, reiterating his buy recommendation on the stock, and indicated that current valuations "represented unusual value and may represent the best stock to make money on in our group at current prices."

Johnson claimed DePuy made "a very amateurish call" by "letting the sales force believe there is a risk in the quarter." He said he also believes the company was on track for the quarter and that valuation of the stock was not based on what it was doing in the current quarter, but what it would be coming out with next year.

Extreme's woes were being felt elsewhere among infrastructure stocks, though not to as great an extent.

Sycamore Networks


was down 9 3/16, or 3.8%, at 235 15/16;

Juniper Networks

(JNPR) - Get Report

was off 9, or 3%, at 294;

Foundry Networks


was off 7, or 3.2%, at 211;

F5 Networks

(FFIV) - Get Report

was down 9 3/8, or 6.6%, at 132; and

Redback Networks


was actually up 2 1/2, or 1.5%, at 144 1/2.