Tech Industry

Tech stocks turn sour

After rising to new heights, high-tech stocks take a dive. We'll tell you why.

After a sweet run in January, high-tech stocks turned sour in February, driven down by companies failing to leap far beyond earnings estimates and a slowing of sectors such as networking.

Nasdaq's high-tech index, for example, yesterday fell four percent to 521.46, down from 543.29 the previous day. The fall in technology stocks was in part due to a drop in the overall market, which fell on fears the Federal Reserve would raise interest rates.

But that was just one event that hurt tech stocks in what has been a rough month.

"The first quarter of the calendar year tends to be weak, but yet it still doesn't explain what we've seen," said Bruce Lupatkin, research director for Hambrecht & Quist. "The second piece to the puzzle is a number of companies barely made their numbers or didn't exceed them by a wide amount. And thirdly, some sectors like networking are slowing."

He noted that the first quarter tends to have sluggish sales over the busy fourth-quarter holiday season, resulting in a slowdown of a company's performance and stock.

Companies that reported earnings that didn't meet analysts' expectations also got knocked a bit.

David Takata, an analyst with Gruntal & Company, said February was also soured by networking companies like 3Com (COMS) reporting they expected slow growth. 3Com, for example, saw its stock drop 28 percent this month on the news of a slowdown and increased competition from Intel. (Intel is an investor in CNET: The Computer Network.)

Cisco (CSCO) and Ascend Communications (ASND) also took a hit.

But despite the heavy sell-off of networking stocks, Lapatkin noted the situation is not dire. "I'm not saying networking is turning south in a dramatic fashion," he said.

Tech stocks, prior to February, had been on an upward track since July when the index was at a low 380. The index jumped from 410 in early September to 480 later that month and climbed as high as 583 in late January.

"As companies start to report the March quarter and look to the second half of the year, we'll see a rolling recovery, and that happens near April," Lupatkin predicted.