Techs Still Standing Despite Compaq Warning, Downgrades

With markets still quivering from Compaq's earnings warning, analysts add to the aftershocks by cutting ratings.
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SAN FRANCISCO -- The effects of Compaq's (CPQ) earnings warning late Friday haven't been as bad as expected.

A number of firms cut their ratings on Compaq, including

Bear Stearns

,

Salomon Smith Barney

,

Morgan Stanley

and

S.G. Cowen

, while

Goldman Sachs

removed Compaq from its recommended list. However, analysts differ on whether Compaq's problems are industrywide or limited to the boxmaker.

PaineWebber

analyst Don Young said, "While many have been hoping that the PC weakness early this year is just normal seasonality, the magnitude of the Compaq miss indicates something far worse."

In early trading, Compaq was trading down 6 5/16, or 23%, at 24. Also,

IBM

(IBM) - Get Report

was down 4 3/16, or 2%, at 182 1/8, as Compaq blamed much of the competitive pricing it was facing on IBM.

Dell

(DELL) - Get Report

was down 2 1/2, or 6%, at 41.

In a report, Bear Stearns wrote: "While we would expect to see collateral impact on other computer stocks in the near term, we would maintain our buys -- particularly on weakness -- on Dell,

EMC

(EMC)

,

Gateway

(GTW)

,

Apple

(AAPL) - Get Report

, IBM,

Sun

(SUNW) - Get Report

and

Intel

(INTC) - Get Report

.

Goldman Sachs also places much of the blame on Compaq.

"While the initial reaction to the Compaq shortfall may be interpreted negatively for the PC industry in general, we believe the shortfall reflects issues specific to Compaq," the investment bank said, adding "we would be hesitant to extrapolate Compaq's challenges onto the broader PC market, especially Dell and Gateway."

Intel, also reeling from news of a downgrade, was off 3 1/4, or 5%, at 62 3/16.

BancBoston Robertson Stephens

analyst Dan Niles downgraded Intel to long-term attractive from strong buy. He also downgraded

Hewlett-Packard

(HWP)

from buy to long-term attractive and

Micron Electronics

(MUEI)

from buy to market perform.

"We believe the market will be very choppy in computer hardware stocks through most of the third quarter," Niles wrote.

Contrary to

popular opinion, however, the effect of Compaq's woes on the tech sector has been muted thus far. The

Nasdaq Composite Index

, after opening more than 2% lower, has staged a comeback of sorts and was lately down 17.