Investors Flee Networkers as Profit Warnings Batter Sector

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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."