THE DAY AHEAD: Hardware stocks make Internet collapse tolerable

Rather than dwell on the abysmal performance of Internet stocks these past few weeks, investors should look on the bright side and acknowledge the performance of those boring hardware stocks.

Have an opinion on this?

Chip, chip-equipment and network-equipment stocks have quietly been carrying the Nasdaq on their backs. The tech-laden index has shed more than 10 percent of its value in less than two weeks. And that was coming off an all-time high of 2,870ish.

What we're calling a correction today would've been called a crash a year ago when the Nasdaq was sitting at 1,800 points.

For all the heavy losses taken by America Online Inc. (NYSE: AOL), Amazon.com Inc. (Nasdaq: AMZN), Yahoo! Inc. (Nasdaq: YHOO) and so on, the Nasdaq is still up 41 percent from this time last year.

Coincidentally, that 41 percent explosion came in a four-month span between October and early February. No one would dare dream of a repeat performance from Internet stocks again this fall, but even a slight improvement could mean a 50 percent rise in the Nasdaq for the year.

Hardware stocks strong and steady

There had to be something at the bedrock of this incredible growth.

Take a look at IBM, Intel, Applied Materials and the Internet backbone guys Cisco and Lucent. They've been nothing short of spectacular.

IBM shares moved up from 55 3/8 last August to a high of 139 3/16 last month. In between, it split 2-for-1 in May. IBM sells a lot of everything. It's made a commitment to the Internet all right, but it's making huge gains in its services business.

How impressive is it that Intel Corp. (Nasdaq: INTC) hits a 52-week high of 73 9/16 less than three weeks after missing quarterly earnings estimates for the first time in years? It was somehow disappointing that Intel only made $1.75 billion in its second quarter on sales of $6.75 billion.

Demand for telecommunications and network chips used to power the Internet's staggering growth is skyrocketing. Sometimes Wall Street gets so spoiled it forgets just how strong these companies have been and why they're growing so fast right now.

Most analysts predict worldwide semiconductor sales will improve 15 percent to 25 percent this year. Chip-equipment companies are projecting sales as good or better.

Speaking of chip-equipment stocks, Applied Materials Inc. (Nasdaq: AMAT) will report earnings Aug. 17 and you can bet they'll top the First Call estimate of 52 cents a share. Applied's stock was stagnant at around $25 this time last year. On Wednesday, it closed at 72 7/8.

Cisco and Lucent Technologies are in a class by themselves. Lucent hustled from $45 a share to a high of $80 a share last month with a 2-for-1 split in between. It also bought a company called Ascend Communications, too.

Cisco's climb from roughly $33 a share to $69 a share in July is pretty damn good, but it also stuffed a 3-for-2 and a 2-for-1 split in there. That $33 share last August is now worth about $165. Scarier yet, most of those investors were holding Cisco after it split 3-for-2 in December 1997.

These companies have all directly benefited from the Internet's unparalleled growth. There's every reason to believe they will continue to do the same, astounding us with every quarterly report.

The market's nothing if it's not cyclical. Top-tier Internets will have their day.