The effect of Nortel Network's pre-announcement spilled across the tech sector Friday, sending networking and fiber-optic stocks tumbling. Analysts scrambled to gauge the effect.
Shares of the Canadian communications equipment powerhouse dropped $9.90, over 33 percent, to a new 52-week low of $19.85 at the opening bell. Nortel (NYSE: NT) had traded at a 52-week high of $89.
Yesterday, the company warned of a massive shortfall for the first quarter, lowered growth estimates for 2001, and said it expects to lay off 10,000 employees.
The impact was felt across the a number of related sectors.
Among networking equipment stocks, Cisco Systems (Nasdaq: CSCO) lost $2.06 to 28.75; Juniper (Nasdaq: JNPR) dropped over 9 percent, down $8.56 to $83.63; Sycamore Networks (Nasdaq: SCMR) fell $1.56 to $25.25. Optical network component maker JDS Uniphase (Nasdaq: JDSU) was downgraded at First Union and shed over 13 percent, off $6.13 to $39. Ciena (Nasdaq: CIEN), which recently raised estimates for 2001, lost $2.19 to $86.81.
Analyst reaction was furious, as Wall Street tried to assess the impact of the news from Nortel.
At Merrill Lynch, analyst Tom Astle said he believed the new outlook from Nortel may not have been fully communicated to the company's suppliers.
Astle said JDS Uniphase's business from other companies such as Ciena may help mitigate a negative Nortel effect. Corning, which lowered revenue estimates while maintaining earnings estimates, may see an impact in its photonics business, but won't see ill-effects in its fiber business, the analyst wrote.
At CIBC Oppenheimer, analyst Jim Jungjohann shaved his revenue and earnings targets on JDS Uniphase. Lucent (NYSE: LU) was maintained at a "buy" rating, while estimates were trimmed on Nortel customer New Focus (Nasdaq: NUFO).
Estimates for WJ Communications (Nasdaq: WJCI) were reduced at J.P. Morgan. Powerwave Technologies (Nasdaq: PWAV) was deemed to be relatively unaffected by Nortel--estimates and a "long-term buy" rating were maintained.
Analyst Tim Savageaux at WR Hambrecht cut ADC Telecom from "buy" to a "neutral" rating, lumping the company with broad-based vendors such as Nortel and Cisco. According to the analyst, these larger companies have the greatest exposure to the slowdown in capital spending.