JDS Uniphase, a fiber-optic technology maker, announced that it will buy SDL for $41 billion. Under terms of the agreement, shareholders of SDL will receive 3.8 JDS shares, or $441.51, for each SDL share, almost 50 percent more than SDL's closing price on Friday.
Shares of San Jose, Calif.-based SDL rose $30.06, or 10 percent, to $325.38. The stock set a new 52-week high of $330.94, compared with a low of $25.54 over the same period.
Shares of JDS, however, fell $13.31, or 11 percent, to $102.88. Volume reached 50 million shares, nearly three times the stock's average daily volume of 18.7 million shares, making it the most actively traded stock on the Nasdaq.
The broader markets followed a similar win some, lose some, pattern.
The Nasdaq composite index was off 2.55 in midday trading to 4,020.65, and the Standard & Poor's 500 index inched up 4.89 to 1,483.79. The Dow Jones industrial average gained 42.07 to 10,678.05.
The CNET tech index fell 19.19 to 2,832.71. Losers outnumbered winners with 49 of the 94 stocks tracked falling, 42 rising, and three remaining unchanged.
Of the 18 sectors tracked, semiconductor equipment makers posted the largest gains, rising 2 percent, while network equipment makers fell nearly 2 percent.
Despite the drop in JDS' stock price, some analysts viewed the acquisition as a good strategic fit that will complement the optical equipment makers' abilities and increase production to meet strong demand.
"This is a capacity-constrained industry, and as such, any increase in manufacturing capacity is a positive that may help to eliminate some bottlenecks," said Merrill Lynch analyst Tom Astle in a report released this morning. "Time to market on future products should be accelerated by having all of their technologies in one house," he added.
JDS has been on a shopping spree lately, and integrating new, large acquisitions is always a challenge. The company just recently closed a $15 billion deal to buy E-Tek Dynamics and coughed up $750 million in April to buy Cronos Integrated Microsystems.
Investors are also looking for big things from the sector, and any hint of downside could send the stocks reeling.
"We believe that investor expectations of business strength are high," wrote PaineWebber analyst David Wong. "We think that any disappointments in quarterly results or any concerns regarding slowing end-market growth could have a significant, negative impact on stock prices for individual companies or for the group."
The U.S. Justice Department may also view the acquisition as anti-competitive for the sector. In April, the Justice Department asked JDS and E-Tek for additional information concerning their union, a sign that the government is watching the industry closely.
Meanwhile, shares of TenFold fell after the company warned that earnings for the current quarter will not meet analysts' expectations.
Shares of the Draper, Utah-based company fell $7.44, or about 44 percent, to $9.63, making the developer of e-business software the largest percentage loser on the Nasdaq. Volume reached 4.6 million shares, about 20 times more than the stock's average daily volume.
The stock has fallen almost 76 percent this year, having traded as high as $76.87 in the past year.
The company said in a statement it expects a second-quarter loss of 3 cents to 5 cents per share compared with a profit of 3 cents in the year-ago period. Revenues will likely reach $30 million to $32 million, compared with $19 million in the year-ago period.
Wall Street analysts were expecting TenFold to earn 9 cents a share, according to a survey by First Call/Thomson Financial.
The company cited longer-than-expected sales cycles, increased expenses in anticipation of higher sales, and delays encountered on some existing projects as the primary reasons for the shortfall.
Shares of chipmaker Advanced Micro Devices rose $4.06 to $86.06 after Lehman Brothers raised the stock's price target to $110. The stock has traded in a range between $97 and $15.62 during the past year and has risen 197 percent so far this year.
Among other tech stocks making significant moves, shares of Internet venture fund CMGI fell $5.50, or 12 percent, to $39.13. Inktomi, which makes products to speed Web browsing, fell $11.06, or 9 percent, to $110.81.