Nortel and Palm brought their competitors down with them at midday, resulting in a rash of selling across the tech sector. The Nasdaq plunged 84.75 points, or 4 percent, to 1,887.51.
The Dow Jones industrial average sank 230.28 points, or 2 percent, to 9,717.26, and the Inter@ctive Week @Net Index fell 13 points to 174.48.
Another profit warning from Nortel Networks (NYSE: NT), off $2.64 or 16 percent, to $14.12, dragged down other networking firms. Competitor Cisco (Nasdaq: CSCO) fell $1.75 to $16.37, and shares of rival Lucent were off $1.13 to $10.57. JDS Uniphase (Nasdaq: JDSU), which counts Nortel as a major customer, lost $2.81 to $20.50. Ciena (Nasdaq: CIEN), which supplies Nortel and competes with it, dropped $5.19 to $48.63.
Nortel's inability to project its financials was more of a concern to investors than the company's lower expectations. Its lack of outlook is part of a larger trend that's taking its toll on investors' psyches.
"There are still companies with downward revisions and warnings, but more importantly the warnings are followed by less visibility or no visibility on behalf of management," George Rodriguez, senior vice president at investment banking firm Guzman & Co. told Reuters. "That leads investors to think there might be additional pressure on corporate earnings going forward," he added.
Palm (Nasdaq: PALM) shares, off $7.38 to $8.13, took a hit Wednesday after the company predicted that sales would slump $250 million below estimates for its fourth quarter.
Shares of Palm rivals also fell. Handspring (Nasdaq: HAND), which makes a competing handheld using the Palm OS, was off $4.44 to $11.75, and Research in Motion (Nasdaq: RIMM), which develops two-way messaging devices, slumped $3.51 to $20.77.
PurchasePro (Nasdaq: PPRO) rose 9 cents to $7.34, and AOL Time Warner (NYSE: AOL) fell 94 cents to 42.06 after the companies announced Wednesday that they would extend their business-to-business and e-commerce efforts by inking 10 new agreements to develop the Netscape Netbusiness marketplace.
Shares of Agere (Nasdaq: AGR.A), Lucent Technologies' (NYSE: LU) chip spinoff, opened slightly higher than its $6 price on heavy volume. Agere was trading at $6.05 in early trading as more than 38 million shares exchanged hands.
Amazon (Nasdaq: AMZN) fell 74 cents to 10.90, and Yahoo (Nasdaq: YHOO) fell 63 cents to $14.94.
Intel (Nasdaq: INTC) shed 75 cents to $28.63, Oracle (Nasdaq: ORCL) lost $1.12 to $57.13 and Microsoft (Nasdaq: MSFT) fell $1.13 to $57.13.
ZDII staff and Reuters contributed to this roundup.