NEW YORK (CNNfn) - The bloodbath in the technology sector continued unabated Thursday, as investors concerned about the sector's sky-high valuations continued to retreat to safer territory.
The carnage among tech stocks was far reaching, dragging semiconductor issues, dot.coms and computer equipment makers sharply lower for the third consecutive session.
The Nasdaq, which rallied briefly at the open, ended the session 186.78 points lower at 4,457.89, a 4 percent decline on the day. Meanwhile, the Dow Jones industrial average edged down 38.47 to 10,980.25
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Losses in some blue-chip tech stocks weighed heavily on the Dow, which traded higher for the better part of the session.
Shares of computer chip giant Intel (INTC: Research, Estimates) fell 4-7/8, or 3.7 percent, to 127. Microsoft (MSFT: Research, Estimates), another Dow component, slid 3-13/16 to 103-3/8, a 3.6 percent slide.
Other big name technology issues heading lower Thursday included Texas Instruments (TXN: Research, Estimates), which ended the day 7-11/16, or 4.5 percent, lower at 163-1/18; Motorola (MOT]: Research, Estimates), off 11-3/16 at 143-13/16, a 7.2 percent slide; Compaq (CPQ: Research, Estimates), which ended 1-1/2, or 5.3 percent, lower at 27; and Cisco Systems (CSCO: Research, Estimates), which slid 2-7/16, ending the session 3.2 percent lower at 73-5/8.
Though the technology sector's recent decline left a lot of investors licking their wounds, some observers are looking at the move as a healthy shift in assets in the wake of the sharp divergence in valuation between technology stocks and more traditional issues such as retail, drug and consumer-related companies.
"This divergence that's developed over the last 12 months, has clearly been the widest I've ever seen in all the years I've been in the business," Ned Riley, chief investment strategist at State Street Global Advisors, said in an interview on CNNfn's Ahead of the Curve program Thursday.
"It did not make me feel very comfortable because of the valuations that were starting to be placed on these technology stocks. They were almost discounting utopia until the end of this century, and that really is a scary scenario," Riley said.
Analyst downgrade socks Cabletron
Cabletron Systems ended the session 21-5/16, or 42.7 percent, lower at 28-9/16 after Goldman Sachs analyst Ajay Diwan on Thursday cut his rating on the company's shares to "market performer" from "market outperformer," citing lower-than-expected revenue from a key product line and problems with the company's restructuring plan.
Meanwhile, Nortel Networks (NT: Research, Estimates) fell 11-3/8 to 123-1/4, an 8.5 percent slide. Juniper Networks (JNPR: Research, Estimates), which earlier in the week rolled out the industry's fastest Internet router, ended the day down 21, or 7.3 percent, at 267. Adpatec (ADPC: Research, Estimates) shares slid 2-7/8 to 41-7/16, a 6.5 percent decline on the day. 3Com (COMS: Research, Estimates) ended the day down 4-3/8 at 58-13/16, a 6.9 percent slide.
The American Stock Exchange's networking index ended the session down 73.7 at 1,032, a 6.7 percent decline on the day.
Veritas rides Seagate wave
Shares of network storage software vendor Veritas (VRTS: Research, Estimates) escaped Thursday's carnage, ending the session 2-3/4 higher at 145-1/4, a 1.9 percent gain on the day.
On Wednesday, the company said it would buy back the $18 billion worth of its stock currently held by Seagate Technology (SEG: Research, Estimates) as part of a complex plan to turn the disk-drive maker into a private company.
Standard & Poor's also sad that it would add Veritas to its closely tracked S&P 500 index.
On Thursday, analysts at Merrill Lynch and Alex. Brown reiterated their "buy" ratings on Veritas, and Salomon Smith Barney analyst John Dean applauded the deal, upgrading his rating on the stock to "buy" rating or "1H" from "2H." Dean is maintaining his price target of $200 and current estimates.
"We believe this is a win/win transaction ... Seagate shareholders get an approximate 26 percent premium over SEG's 30-day moving average ... our belief is that Veritas should be a core holding as a result from its strength in management. Veritas has exceptional growth potential in the storage software industry and beyond. We believe that Veritas will eventually be able to leverage its impressive storage platform into other markets, such as Internet infrastructure and e-business," Dean said in a research note.
Seagate shares fell 7-1/2, or 10/1percent, to 66-1/2.
Dot.coms on a downswing; chips along for the ride
Internet stocks headed sharply lower Thursday, dragging the Dow Jones composite Internet index down 17.97, or 4.4 percent, to 388.
Infospace.com (INSP: Research, Estimates), which provides Internet infrastructure services, fell 14-13/16, or 10.2 percent, to 130-1/4. Online community site iVillage (IVIL: Research, Estimates) fell 2-11/16 to 16-9/16, a 14 percent decline on the day. PSInet (PSIX: Research, Estimates) shares fell 3-13/16, or 10 percent, to 34-1/16. Yahoo! (YHOO: Research, Estimates) shares fell 7-9/16 to 169-1/2, a 4.3 percent slide.
Shares on online music retailer CDNow (CDNW: Research, Estimates), which have dropped sharply in recent sessions amid reports that it may be running out of cash, edged up 5/16 to 3-13/16, an 8.9 percent rise on the day.
Online auctioneer eBay (EBAY: Research, Estimates) also bucked Thursday's dot.com downturn, adding 8-1/8 to 207-1/8, a 4 percent gain on the day. Online bookseller Barnesandnoble.com (BNBN: Research, Estimates) headed higher as well, adding 3/4, or 8.8 percent to 9-5/16.
Semiconductor issues also headed broadly lower, sending the Philadelphia Stock Exchange's semiconductor index, or Soxx, 42.49 lower to 1,151.31, a 3.6 percent slide on the day.
 Among the biggest losers were Micron Technology (MU: Research, Estimates), off 13-1/2, or 10 percent, at 121; Altera (ALTR: Research, Estimates), which fell 8-1/2 to 76-3/8, a 10 percent decline; Analog Devices (ADI: Research, Estimates), which fell 5-3/8 to 68-7/16, a 9.6 percent slide; and Micrel (MCRL: Research, Estimates), off 7-1/8, or 6.5 percent, at 102-5/16;
Advanced Micro Devices (AMD: Research, Estimates), however, escaped Thursday's sell-off, ending the session up 5-1/4, or 9.6 percent. Robertson Stephens analyst Dan Niles raised his year-end price target on the company that competes with Intel in the market for PC microprocessors.
"The back half of the year looks like it will be better than expected," said Niles, who pegged a new price target of 75.
Sales of flash-memory chips, where AMD also competes with Intel, should rise more than 80 percent this year to $1.4 billion, Niles said, adding that microprocessor revenue should climb more than 70 percent to $2.4 billion. 
--from staff and wire reports
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