The Nasdaq slid 55.67 to 2,029.12, and the Dow Jones industrial average slipped 66.94 points to 10,472.12.
Intel was the most actively traded stock Monday afternoon, down $1.06 to $29.13 after some negative reports about the chip sector. Applied Materials, down $4.41 to $41.95, caused some concern when management said in an analyst meeting at SemiconWest, a semiconductor industry meeting, that the industry is entering the "second phase" of a downturn. CNET's Semiconductor index was off 4 percent.
Cisco Systems also fell after Morgan Stanley cut its revenue estimates on the networking provider. Shares were off 5.5 percent, down $1.03 to $17.71. Analyst Christopher Stix said he believes revenue could come in below the company's estimates. Cisco had said revenue would be down about 10 percent sequentially, but Stix said the company could deliver a revenue decline of up to 14 percent.
CNET's Networking index was off almost 3 percent. Shares of competitors Nortel Networks and Lucent Technologies were also declining. Nortel fell 68 cents to $7.84, and Lucent was off 52 cents to $6.81.
CNET's Telecom index was down almost 5 percent.
A merger in the contract-equipment manufacturing sector also caught investors' attention. Sanmina, down $2.38 to $19.76, and SCI Systems, up $1.28 to $26.45, said Monday that they will merge in a $6 billion stock swap to create a company with about $14 billion in annual revenue.
Media company USA Networks, up $1.26 to $26.52, said it will buy a controlling stake in online travel company Expedia.
Expedia, down $3.81 to $44.89 , also said fourth-quarter net income excluding charges will be $12 million to $14 million, or 20 cents to 23 cents a share, topping its earlier expectations.
Level 3 Communications soared 52 cents to $4.17 and has inked a deal with Verizon Communications to provide broadband services for its network hubs. The news reassured investors who had been worried about the company's cash reserves.
Among technology bellwethers, Microsoft fell 16 cents to $71.18, Sun Microsystems shed 63 cents to $15.01 and Oracle slipped 84 cents to $18.70.
Amazon.com fell 97 cents to $16.01, AOL Time Warner dropped 45 cents to $49.63 and Yahoo shed 24 cents to $18.01.
Staff and Reuters contributed to this report.