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Tech Titans Show Achilles' Heels

Nasdaq: Hurt by softening PC demand and strategic errors, longtime kingpins such as Intel and Microsoft face being supplanted.


In a sign that a sea change may be sweeping across both the technology sector and the stock market, tech giants Intel and Microsoft fell prey to another steep sell-off Monday even as shares of some lesser-known but faster-growing tech companies rallied sharply.

Intel, the chip behemoth that traded above $75 less than two months ago, tumbled $4.69, or almost 12%, to $35.69 after negative comments by brokerage Salomon Smith Barney. Microsoft, which has dropped 58% from its December high, shed $3.38 to $50.38, lowest since late-1998.

In contrast, Juniper Networks, a maker of routers that direct traffic over the Internet, jumped 6% to a record high Monday after releasing glowing third-quarter earnings Friday. Shares of other tech up-and-comers, including Ariba, Redback Networks and Broadcom also gained.

Monday's split performance among tech shares underscores what experts say may be the most important trend in the market today: As many of the best-known tech stocks that propelled the 1990s bull market fall harder and faster than Wall Street once thought possible, it is becoming ever more doubtful that those stocks can regain their leadership positions any time soon.

But as money flees those stocks, it is flowing into newer tech names that could become long-term market leaders, some analysts say.

To be sure, the old tech leadership isn't being completely replaced. Some of the largest tech stocks--such as Cisco Systems, Sun Microsystems and Oracle--remain Wall Street favorites.

It's also important to note that the declines in stocks such as Intel and Microsoft may be exaggerated at the moment because of tax-related selling by mutual funds: Many of the funds must record 2000 tax losses by Oct. 31, under IRS rules.

Still, experts say, big-money investors clearly have been unloading Intel and Microsoft with a vengeance--suggesting that there is deep concern about the companies' long-term sales and earnings growth potential.

Tellingly, amid the near-record Nasdaq rebound last Friday, Microsoft fell 1%.

The trend could have significant ramifications for the many individual investors who have become programmed to buy big-name technology stocks on dips. The strategy paid off repeatedly in the 1990s when the stocks recouped their losses and often quickly went on to new highs.

But that approach may be far less profitable in the future if the stocks endure an extended period of subpar performance because Wall Street has lost faith in them as core holdings.

"Microsoft and Intel will come through this, and even [badly beaten-up] Lucent," said Abel Garcia, a tech-stock manager at the AIM mutual fund group in Houston. "But they won't come back as they have in the past."

The woes at big-name companies are varied, but can generally be separated into two camps, experts say. On one hand, companies such as Intel, Microsoft, Dell Computer and Apple Computer are falling victim to a slowing personal-computer market. "The market for PCs has just matured and the rate of growth is no longer there," said Jim Chen, a tech-stock manager at Roger Engemann & Associates.

Other firms, such as Lucent, are suffering company-specific problems created by strategical mistakes, experts say.

Whatever their reasons for selling those former leaders, money managers clearly are voting in new tech leaders: Witness the gains in such stocks as Juniper, EMC, Broadcom and JDS Uniphase since May 23, the bottom of the spring tech sell-off.

Though many of these new leaders have lower profiles among the general investing populace, they have far rosier growth prospects.

Profit at Juniper Networks, for example, is predicted to surge 53% in 2001, compared with less than 8% growth at Intel, according to IBES International.

Many of the new leaders focus on fast-growing areas, such as fiber optics, software for business-to-business e-commerce, and Internet infrastructure.

"It used to be 'new economy' versus 'old economy,' " said Bob Turner, investment chief at Turner Investment Partners. "Now, it's old-economy tech vs. new-economy tech."

The younger companies are by no means small. Though they each went public only 16 months ago, Ariba has a market capitalization of $32 billion, while Juniper Networks is at $77 billion.

The near-term risk, however, is that many of these new leaders are priced at enormous valuations now. Ciena, for example, trades at 437 times estimated 2000 earnings; Juniper is at 517 times earnings.

Given those lofty price-to-earnings multiples, many analysts are worried the stocks could suffer a bruising selloff near term, if the market overall continues to slide.

Still, in the long run the stocks are likely to remain leaders--and continue to carry high valuations--as long as Wall Street trusts that they will show the rapid earnings growth that Intel and its peers once provided, analysts say.


As Old Leaders Slide ...

These tech giants have plunged in recent weeks, falling well below their worst levels of the spring tech-stock sell-off.


Monday Monday Pctg. change Stock close change since May 23 Yahoo $55.25 -$4.75 -53% Dell 25.36 -1.95 -42 Intel 35.69 -4.69 -35 Microsoft 50.38 -3.38 -20


These tech stocks have emerged to take the place of the old leaders in many investors' portfolios.


Monday Monday Pctg. change Stock close change since May 23 Juniper Networks $243.00 +$14.50 +221% Ariba 131.38 +9.69 +144 EMC 96.69 +1.75 +81 Broadcom 222.38 +7.06 +78 Nortel 67.44 +2.00 +41 JDS Uniphase 94.44 +0.06 +19 Nasdaq composite 3,290.28 -26.49 +4


Source: Times research, Bloomberg News

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