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Nasdaq tumbles on tech sector fears

The Nasdaq continues its steep decline, as a warning from Sun Microsystems sparks fears within the technology sector.

The Nasdaq continued its steep decline Wednesday, as a warning from Sun Microsystems sparked fears within the technology sector.

U.S. semiconductor and optical-networking stocks also took a hit from downgrades.

The Nasdaq tumbled 91.04 points to 2,084.50, and the Dow Jones industrial average fell 166.50 points to 10,872.64.

Sun's shares dropped $2.42 to $16.25 after the company warned on Tuesday that it won't meet quarterly expectations. Analysts said Sun's European business and its competitive outlook are so grim that it may not even meet its downwardly revised numbers.

"When you get that news on Sun, it throws a wet blanket over a huge sector," Cummins Catherwood, fund manager for Rutherford Brown & Catherwood, told Reuters. "If Sun says that, what are we going to hear from Dell, from Compaq? It must be awful out there too." Dell Computer was down $1.25 to $24.40, and Compaq Computer slid 76 cents to $15.70.

Optical-networking stocks foundered after a Morgan Stanley analyst said that although some companies in the industry may have seen their stocks rebound slightly in the past few weeks, the sector will not recover until at least the end of the year.

Analyst Alkesh Shah downgraded Tellabs, JDS Uniphase, Nortel Networks and Sycamore Networks from "outperform" to "neutral." Tellabs was down $3.45 to $33.93. JDS fell $2.23 to $16.94. Nortel was down $1.27 to $13.35, and Sycamore fell $1.24 to $8.99.

The semiconductor sector was also hit by a blanket downgrade. Citing weak demand and continuing inventory issues, Morgan Stanley analyst Mark Edlestone lowered estimates on seven semiconductor companies. Agere dropped 45 cents to $7.05. Broadcom fell $3.80 to $33.09, and Cypress Semiconductor fell $1.77 to $20.98. National Semiconductor lost $1.89 to $25.61. PMC-Sierra fell $3.78 to $31.32. Rambus dropped 94 cents to $10.38, and Texas Instruments fell $3.46 to $33.09.

RealNetworks, up 68 cents to $11.30, said it signed an agreement with Intel to ship its technology with the chip giant's desktop motherboards. The deal comes as RealNetworks fights off rumors that its distribution deal with AOL Time Warner's America Online is in jeopardy and that it is losing ground to Microsoft's competing Windows Media Player.

CBS MarketWatch, down 14 cents to $2.76, will lay off 15 percent of its staff, or nearly 40 workers, in a move to save money in a tough advertising market. was down $1.56 to $15.66. AOL Time Warner rose 10 cents to $51.10, and Yahoo shed $1.12 to $17.67.

Cisco Systems fell $1.46 to $19.00. Intel fell $1.25 to $26.60. Microsoft lost $1.15 to $69.19, and Oracle lost $1.10 to $14.51.

Staff and Reuters contributed to this report1>.