Shares of computer makers sank Thursday, amid persistently downbeat news about shrinking PC demand and ahead of a reduced earnings report from

Dell Computer

(DELL) - Get Report

.

From reports on an

oversupply of DRAM memory used in PCs to reports from retailers that demand is slowing, investors have had continuous reminders of slow growth in the sector.

The

Philadelphia Stock Exchange Computer Box Maker

sector closed down 3.3%, pulled down by some of the nation's biggest retail PC manufacturers.

"We haven't seen any upside surprises in this group. Most people have been working hard to make their numbers," said analyst David Bailey with

Gerard Mattison Klauer

.

There wasn't much good news today, either. In a research note about a trip to Asia,

Robertson Stephens

analyst Eric Rothdeutsch said many of the PC motherboard manufacturers he visited were estimating reduced sales. Since the quarter began, he wrote that Taiwanese motherboard makers on average reduced their sales forecasts from 10% to 18% for the fourth quarter of the year.

UBS Warburg

analyst

Don Young

wrote that he expected retail PC demand to weaken for the year, although he forecast that growing commercial demand would take up the slack to meet an estimated 17% unit-growth rate.

Compaq led the charge downward, closing down $2.24 or 7.6% to $27.11. Dell, which announced it met analysts' expectations of 25 cents a share for the third quarter, dropped before the meeting, closing $1.91 or 6.4% to $28.38.

Hewlett-Packard

(HWP)

, which reports earnings Nov. 15, fell $2.75 or 6% to $42.91.

Gateway

(GTW)

, closed down $1.80, or 3.7% to $46.20.

In a note downgrading six semiconductor makers,

Banc of America Securities

analyst Richard Whittington noted that chip giant

Intel

(INTC) - Get Report

had cut pricing for flash memory and microprocessors, used in consumer products.

And Whittington lowered earnings estimates for DRAM leader

Micron Techonolgy

(MU) - Get Report

, citing, in part, the sharp declines in prices for the memory used in PCs. Micron closed off $2.06 or 6% to $32.55.

3:20 p.m.: Online Advertisers Punched Out Again

The decline in Internet advertising and the shrinking pool of capital that's available to help fund dot-coms isn't a new story -- it's just one that keeps getting uglier.

In the latest chapter, shares of Internet advertising networks were diving Thursday after two more online ad agencies announced problems with their earnings.

Overall,

TheStreet.com Internet Sector

index was down more than 7%, pulled south by three of the largest Internet advertising networks:

24/7 Media

(TFSM)

,

Doubleclick

(DCLK)

and

Engage

(ENGA)

. These companies help hook up advertisers with Internet sites where they can try to reach consumers.

Doubleclick is trading down down 19.2% today, but the weaknesses demonstrated by 24/7 and Engage may end up giving Doubleclick an advantage.

24/7 yesterday announced a revenue shortfall and losses of 59 cents per share, missing an estimate of a 47 cents-per-share loss, according to analysts polled by

First Call/Thomson Financial

. The company said it would restructure, cutting 17% of its staff, which is about 200 jobs.

TheStreet.com

wrote a detailed story about

the earnings.

You guessed it. Analysts jumped on the downgrade bandwagon.

Deutsche Banc

,

J.P. Morgan

,

UBS Warburg

,

Credit Suisse First Boston

and

ING Barings

all lowered their ratings of the stock. "We are not convinced that these are the last cuts. You have to call into question their ability to compete in the longer term," said David Doft of ING Barings.

Merrill Lynch

this morning made a similar statement, writing that unless 24/7 sells some of its equity stakes or raises funds, it will run out of cash in the first quarter of its next fiscal year.

The advertising networks are today's poster children for the ongoing saga in the online world. The dot-com companies that themselves are advertisers may be half or more of their customers, but they can't raise the money needed to keep up their advertising and branding campaigns. After all, many of them are struggling just to keep their businesses afloat. And the expected migration of offline companies interested in advertising on the Internet is going much more slowly than hoped.

So what ails Engage? CEO Paul Schaut resigned Wednesday after the company warned that its revenue for the first quarter of 2001, which is the fourth quarter of the calendar year, would be down 24.5%. Its earnings for the 2001 fiscal year are now expected to be 35% lower. The company also announced its own restructuring, saying it would cut 200 jobs.

And the analysts? Engage was lowered to market outperform by

Goldman Sachs

, which says in a report that it is "surprised at the magnitude of the revenue shortfall" of estimates Goldman had lowered just last week because of negative market conditions.

Engage's slide hurt parent

CMGI

(CMGI)

, an Internet incubator that owns a majority stake in Engage. CMGI's stock was trading down 16.9%. And rival incubator

Internet Capital Group

(ICGE)

is losing 32.3% after the company announced losses of 94 cents per share and said it would cut 35% of its staff as part of cost-cutting efforts.

Problems with the Internet advertising model spilled over to others in the Internet space, who have been fighting their own ghosts because of dwindling advertising.

Yahoo!

(YHOO)

and

America Online

(AOL)

, both of which are regarded as a premium place to advertise on the Web, were both off. Yahoo! lately fell 9.3% and AOL was off 6.5%.

These larger companies have advertising contracts that are better insulated from immediate ups and downs from short-term spots. Unlike the advertising networks, their contracts tend to stretch for three months or more, compared with the month-to-month contracts of the advertising networks, said Eric Hansen, an analyst at

Dain Rauscher Wessels

.

About 40% of Yahoo! advertisers are Internet plays, Hansen said, compared with the 55% of 24/7 advertisers and the 50% of Doubleclick's base. "We had always thought that in the longer term, the moderation of dot-com spending would be offset by traditional advertisers coming online," said Doft of ING Barings. "It's becoming a much slower trend."

And that's certainly not a fact worth advertising.