Pulse: Misery Loves Company as Internet Shares Mope With Nasdaq

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On a day when the

Nasdaq

hit a 52-week low, Internet stocks joined in, playing a spirited game of follow the loser.

TheStreet.com Internet Sector

index closed down 8.5%, part of a general selloff of technology stocks, but with a few divergent -- and negative -- themes of its own.

The biggest names in the Internet sector played right along, with e-tailer

Amazon

(AMZN) - Get Report

closing down $2.97 or 10.6% to $25.03.

Dain Rauscher Wessels

raised its fourth-quarter revenue estimates for the site after the Thanksgiving weekend's sales showing.

But investors seemed to be reading another analyst's opinion, the one filed last week by

SG Cowen's

Scott Reamer, which cast some doubt on whether the e-tailing giant could reach the Street estimate of $1.05 billion in sales. Reamer published an update today saying he was still cautious about the stock, although he maintained his buy rating on it.

Giant portal

Yahoo!

(YHOO)

, dogged by persistent bad news about Internet advertising, fell with the rest of the sector $3.16, or 7.8% ,to $36.97.

Fellow Internet and advertising leader

America Online

(AOL)

also dropped today, after the

Federal Trade Commission

decided to delay a vote that would block a proposed merger with

Time Warner

(TWX)

. AOL closed down $3.41 or 7.7% to $40.56.

According to a

Wall Street Journal

report, the FTC is looking closely at the agreement AOL and Time Warner signed with Internet service provider

EarthLink

(ELNK)

last week. According to the

Journal

, the FTC wants more time to check the contract, which it required as a way of showing the merger wouldn't shut off competitors' access to high-speed cable lines.

More worrisome than the immediate delay on the merger vote is the government's close attention to the case, said Reamer, who covers AOL.

"To the degree the government is intimating it is going to play a role in each and every contract that AOL and Time Warner sign, that is not good," Reamer said. His firm has no underwriting relationship with AOL or with Amazon.

EarthLink closed down 25 cents or 3.5% to $6.94. Internet service provider

Juno

(JWEB)

, which is also negotiating an access deal with Amazon and Time Warner, closed up 6 cents or 2.5% to $2.56.

Not to be left out of the crying game, computer makers went down, especially after a negative report this morning from

Salomon Smith Barney

.

The report, from analyst Richard Gardner, suggested that retail inventories were higher than normal. He singled out

Compaq

(CPQ)

for having high retail inventories, writing that he believed Compaq's U.S. inventories are higher now than the five weeks the company reported in September, and that there is some risk to Compaq's December quarter revenue and earnings.

The note drew a response from Peter Blackmore, executive vice president for sales, who said the company was "comfortable with our channel inventory levels and are seeing supply constraints ease during the quarter."

Compaq closed down $1.71 or 6.9% to $23.10.

Gardner was skeptical that either

Apple

(AAPL) - Get Report

, which has recently discounted a PowerBook model and dual processor Power Macs, or

Dell

(DELL) - Get Report

, which has discounted heavily as well, would make their targets for the December quarter. Apple closed down 67 cents or 3.5% to $18.03 and Dell closed down $2 or 8.2% to $22.44.

3:07 p.m. EST: Tech Equipment Shares Pounded

Tech hardware stocks kept sinking Tuesday, buried under wave after wave of bad news and lowered expectations. Pessimism over a slowing economy in general and concerns over slowing tech growth in particular spread from semiconductor equipment to opticals.

Semiconductor equipment makers were hit hard, led by

Novellus

(NVLS)

, after an analyst predicted the semiconductor equipment maker would be guiding down order and revenue numbers in a call after the close of market today.

This morning

Prudential Securities

analyst Shekhar Pramanick lowered his target price for the company to $55 from $85, expecting slowing growth next year.

Other news also brought down the equipment makers.

Cognex

(CGNX) - Get Report

, which makes "visioning" machines used in production, announced its December orders would be below estimates and blamed a slowdown in the semiconductor and electronics industries. Also affecting the semi makers: news that

Hyundai

was cutting production of DRAM chips.

Neither the Cognex announcement nor the Hyundai news was major. But given the climate, it was enough to move sellers.

"People are taking every piece of bad news and using it as a data point to support a bear position," said

Lehman Brothers

analyst Ted Berg.

The small bits of bad news added up to a big lump of hurt for equipment makers. Novellus was lately trading down $3.43 or 11% to $29.37. Industry leader

Applied Materials

(AMAT) - Get Report

also was down $2.75 or 6.2% to $41.37.

Lam Research

(LRCX) - Get Report

also was trading down, $1.43 or 9% to $16.25.

Some of the specialty chips were smarting, too. Still smarting from a

Salomon Smith Barney

reduction in target price issued Monday,

Broadcom

(BRCM)

was trading at a 52-week low, down $10.19, or 10.4% to $87.37. Broadcom, which makes chips for set-top boxes, was especially damaged by

AT&T's

(T) - Get Report

announcement that it was stopping orders for cable infrastructure. Also tainted: communications chipmaker

PMC Sierra

(PMCS)

, trading down $9.06 or 8.8% to $93.42.

Slower economic news gave optical and telecom equipment makers some lumps as well.

In a conference call Tuesday,

Merrill Lynch

analyst Mike Ching cautioned investors about telecom equipment stocks. There has been a great deal of uncertainty surrounding capital expenditures by big telecom service providers in recent months.

Global capital expenditures should increase by only 1%, the Merrill Lynch team said. Ching was most cautious about

Lucent

(LU)

, which last week warned investors that it might not make its fourth-quarter guidance.

Warning that "things will get worse before they get better," Ching said that Lucent has not positioned itself well in new technology strategies and that it has suffered from a talent drain. The stock continued to drop today on the news, trading down $.75 cents or 4.5% to $16.

Nortel

(NT)

was also trading down $1.31 or 3.3% to $37.94.

Cisco

(CSCO) - Get Report

, by contrast, was trading up $.75 or 1.5% to $52.

Other component makers also fell on the double whammy of a slowing overall economy and confirmation that telecom infrastructure spending would slow in the coming year. Among optical component makers,

Ciena

(CIEN) - Get Report

was trading down 9.7% and and

New Focus on Networks

(NUFO)

was trading down more than 16.1%.

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