Techs sag amid glum expectations

The Nasdaq composite index slipped 11.77 points to 1,759.01, and the Dow Jones industrial average picked up 35.78 points to 10,033.27.

Shares of both Hewlett-Packard and Compaq Computer continued to fall as analysts and pundits downplayed the benefit of their merger. The deal was initially valued at $25 billion, based on the Friday closing price of HP's stock. But shares of HP have lost nearly one-quarter of their value since Friday, dropping $5.08 to $18.12 Wednesday. That drop placed the value of the deal around $19.6 billion. HP's acquisition of Compaq will create the largest PC company in the world, but questions have arisen over how well the two cultures can be merged and whether the companies will be too distracted by the merger to take on Dell Computer.

Sun Microsystems' chief financial officer on Wednesday said that the merger would be a "gold mine" for his company, allowing it to move forward in the server market. Compaq was down 67 cents to $10.41. Dell was up 7 cents to $22.38, and Sun was down 32 cents to $10.63. CNET's PC Hardware index was down about 1 percent.

Semiconductor stocks weren't doing any better than PCs. A new report from Goldman Sachs predicted that semiconductor equipment companies won't see order growth until mid-2002, and that capital spending will decline 8 percent year over year.

A new analyst, James Covello, took over coverage of the sector and downgraded ATMI, down $1.01 to $22.24; Axcelis Technologies, up 19 cents to $14.01; Credence Systems, down 29 cents to $15.76; Lam Research, down $1.88 to $25.08; MKS Instruments, down 51 cents to $21.44; Novellus Systems, down 95 cents to $41.37; and Teradyne, down $1 to $30.27.

CNET's Semiconductors index was down about 1 percent.

Microsoft should be on track to meet its financial targets for the current fiscal year 2002, according to Chief Financial Officer John Connors, and the company said it expects a boost from its new Windows XP operating system.

The software giant expects forecasts to remain where they were in mid-July, when the company reported fourth-quarter 2001 earnings. Microsoft shares were up $1.64 to $57.74.

Texas Instruments reiterated that it expected third-quarter revenues to fall 10 percent to 15 percent sequentially as many of its semiconductor customers reduce inventories because of weak demand for their own products. The news should have helped the stock because the company didn't lower estimates, but shares were down $1.26 to $30.84.

French telecommunications equipment maker Alcatel said that it would be a "challenge" for it to reach an operating profit this year. The news comes a day after handset company Ericsson said it sees no clear signs of recovery in the market. Alcatel was down $1.08 to $13.62; Ericsson gained 6 cents to $4.07.

Merrill Lynch lowered its rating on Motorola from "neutral" to "accumulate," citing prolonged weakness in the company's major markets. The stock fell $1.09 to $16.40.

Among other heavily traded tech issues, Intel was up 62 cents to $27.47; Oracle lost 1 cent to $12.07, and Cisco Systems was down 89 cents to $14.88.

Amazon.com was down 94 cents to $7.65. AOL Time Warner lost 75 cents to $36.75, and Yahoo fell $10.06 to $10.64.

Staff and Reuters contributed to this report.