Though Goldman analysts said their changes shouldn't affect stock prices, which have already fallen on negative expectations, CNET's Tech index tumbled 28 points to 1,656.21 in early trading.
Investors have already heard analysts say that the economy is going to slowly recover in a "U" pattern and not a rapid V-shaped recovery, but Goldman offered a more pessimistic outlook. "The recovery, when it comes, will be more moderate," wrote analyst Laura Conigliaro.
Because of the slow-growth outlook, Goldman lowered estimates for 39 companies.
Conigliaro also said this report differs from the calls her firm has made in the past, because it "is built more around realigning our models with our current thinking, and less around the stocks." Conigliaro's bearish research notes on individual companies have helped bring down shares of such bellwethers as Sun Microsystems and EMC in past months.
Tuesday's research report shouldn't affect shares though, since "many stocks have already largely discounted these sorts of changes," Conigliaro wrote.
The analysts' call was based on economic factors. Conigliaro listed three observations that contributed to her revised outlook: few signs of improvement in the tech sector, weakening demand in Europe and continuing currency weakness.
Meta Group says that with the economic slowdown continuing, companies that have not been affected are beginning to see an influence on their industries and are now starting to see a second round of cuts.
The strategy change at Goldman Sachs also inspired a round of estimate cuts for the software sector. Goldman analyst Rick Sherlund reduced estimates for the second half of 2001 and for 2002, and lowered his long-term growth rates for companies in seven industries: enterprise, customer management, supply chain management, business intelligence, infrastructure, PC software and technical software. Big-name companies include Microsoft, Oracle, Siebel and SAP.
"We would not anticipate a major impact on share prices," given that most of these reductions have probably already been anticipated by the market, Sherlund said.
A pat on the back for dot-coms
One sector that wasn't criticized by Goldman was the one that's usually out of favor: dot-coms. Internet stocks got a positive forecast from analyst Anthony Noto.
In a research note entitled "Internet second-quarter preview--A tech safe haven?" Noto said "select Internet stocks represent attractive investments within the tech sector, given strong earnings visibility, potential upside, and continued positive outlooks," characteristics that are "rare today within the broader tech sector."
Although the broad theme was that Internet stocks still have issues, the worst could be over, said Noto. In the Internet new media category, Noto named AOL Time Warner, Homestore.com and Earthlink as top picks. In e-commerce, eBay received accolades.
In a separate note, Merrill Lynch analyst Steven Milunovich offered a more moderate analysis of the technology sector Tuesday. "The trough in the tech profit cycle should occur in either the second quarter or third quarter," Milunovich predicted. Earnings are forecast to be down 45 percent this year and up 52 percent next year, he said.
Milunovich said computer services, supply chain software, storage and energy technology could weather the tough economic times. "We would avoid communications equipment and wireless while taking profits on semiconductor strength," said the analyst, who also listed in his report "25 names that pass our relative strength" tests and "deserve investor attention."