Pulse: Heavyweights Knock Down Tech Sector - TheStreet

TheStreet.com Internet Sector

index slipped 6.7% today on some of its best-known Net components.

Yahoo!

(YHOO)

,

Amazon

(AMZN) - Get Report

and

AOL

(AOL)

might be popular with surfers but they weren't hits with investors.

America Online fell 17.1% on concerns that a decline in advertising spending will hurt its earnings, which are scheduled to be announced Wednesday. Yahoo! fell more than 11%, continuing its trend of making fresh 52-week lows each day.

Amazon.com slid almost 10%, bringing the two-day grand total of losses to 23%. The general Internet-stock slump, concerns over slowing ad demand and uncertainty about Amazon's diversification and profitability all contributed to the decline. Amazon has also been hurt by a slump in retail stocks brought on by a slowdown in consumer spending growth, according to analysts.

Ebay

(EBAY) - Get Report

also had a bad day, dropping 11.5% despite an analyst initiation by

ABN Amro

at buy. ABN Amro analyst Kevin Silverman gave the online auction company a buy rating because it was on its way to capturing a meaningful market share in a number of categories, including business-to-business sales. He set a 12-month price target of $80. He sees 2000 revenue at $415.2 million, and earnings per share at 19 cents, with 2001 revenue at $587 million and earnings at 36 cents a share on 290 million shares.

The

Philadelphia Stock Exchange Semiconductor

index also took a substantial hit, settling 9% lower.

3:58 p.m.: Feeling the Pain -- Net Stocks Beaten By Teradyne

More bad new for the semiconductors came this morning when several firms, including

PaineWebber

, downgraded chipmaker

Micron Technologies

(MU) - Get Report

and

UBS Warburg

lowered its expectations for prices on commodity chips known as DRAM. And when it came to the chip sector the day stayed downright awful.

Semiconductor equipment maker

Teradyne

(TER) - Get Report

slid 29.4%, despite beating the Street's third-quarter earnings expectations of 84 cents a share by a penny. The year-ago figure was 35 cents. While Teradyne's third-quarter profit more than doubled, the company warned of slower fourth-quarter sales growth. Shipments of semiconductor test-related equipment are expected to fall 2% to 4% in the fourth quarter from the third quarter.

Another problem, according to analysts, is that Teradyne's new semiconductor testing methods might lower its margins and cut earnings.

Merrill Lynch

cut its rating on the company this morning to accumulate from buy, citing a shift toward lower margin product testing. Merrill also reduced year 2000 revenue estimates to $3.07 billion from $3.17 billion.

Investors have been generally concerned about growth in the chip sector, so they're listening carefully to what companies are saying they expect from business in coming quarters.

Specialty chipmaker

Altera

(ALTR) - Get Report

helped drag down the

Philadelphia Stock Exchange Semiconductor Index

, known as the SOX. It met

earnings expectations, but disappointed investors with information about its sales growth.

Applied Materials

(AMAT) - Get Report

, which provides equipment and services used in the semiconductor industry, lost 9.5% after

Credit Suisse First Boston

cut earnings and price targets for the stock. Analysts at CSFB lowered the earnings estimate due to recent end-market demand disruptions that will lead to slower-than-expected demand, especially for personal computers and cell phones. Analysts also said capital spending in Taiwan and Japan could temper the company's growth.

Can you feel my pain?

Rambus

(RMBS) - Get Report

rambled 9.4% lower in sympathy with fellow semiconductors. While it was one of the few SOX components to escape analyst scrutiny or investor earnings disappointments, it still felt the crush of overall selling throughout the sector.

The SOX was suffering, down almost 10% by near the end of trading.

Fidelity eases up on key holdings

Feeding investor worries in other parts of tech was news that chip giant

Intel

(INTC) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Texas Instruments

(TXN) - Get Report

fell from Fidelity Magellan Funds' top 10 holdings in the third quarter. Magellan, after all, is the second largest mutual fund.

The three stocks were replaced by

EMC

(EMC)

,

American International Group

(AIG) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

.

TheStreet.com

wrote a

separate story on Fidelity lightening its tech load.

All of the stocks mentioned, except for Microsoft, were seeing red today, with Texas Instruments suffering the biggest blows with 8.5% losses.

Intel fell out of the top 10 because it's lost half its value since its August 31 high. The latest trouble started

yesterday when

Salomon Smith Barney

lowered the company's price target and estimates for its earnings per share.

Then there's the fact that Intel is making an effort to lower its chip prices, which could bring a price war with rival

Advanced Micro Devices

(AMD) - Get Report

and hurt other chip names. AMD lately fell more than 10%.