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Altera, Xilinx plunge
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October 10, 2000: 5:47 p.m. ET
Salomon Smith, Lehman downgrades triggers semiconductor sell-off
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NEW YORK (CNNfn) - The stocks of semiconductor makers Altera Corp. and Xilinx Inc. sank Tuesday after downgrades from both Lehman Brothers and Salomon Smith Barney, triggering a steep sell-off in the entire semiconductor sector.
Altera and Xilinx are makers of programmable logic devices, one of the fastest growing types of semiconductors. Programmable logic devices are chips that can be programmed by a customer at its factory. Altera was the first supplier of Complementary Metal Oxide Semiconductor (CMOS) programmable logic devices and is a leader in that market.
In response to the downgrades, Altera stock plunged $11.06 to $29.81, a 27.06 percent loss, and Xilinx dove $16.69 to $62.44, a 21.09 percent drop.
 Lehman Brothers analyst Daniel Niles on Tuesday downgraded Altera (ALTR: Research, Estimates) and Xilinx (XLNX: Research, Estimates) to "neutral," saying in a research note that revenue growth rates for the next two quarters are likely to slow "as both end customers and contract manufacturers rebalance inventory and order rates as components become more available."
"The near record margin levels will make further earnings per share upside dependent on higher revenue growth," Niles wrote. "Greater than 75 percent year-over-year revenue growth for both Altera and Xilinx in the September quarter is hard to reconcile or maintain when their major end markets are growing closer to 30-40 percent."
Meanwhile, Salomon Smith Barney analyst Clark Westmont downgraded Altera and Xilinx to "market outperform" from "buy," citing "continued deterioration in the environment for general purpose semiconductor chips" in a research note issued Tuesday.
"With supply generally loosening, we believe the overheated environment that boosted the programmable logic device market in the first half of the year has cooled," Westmont wrote. "We believe this limits the amount of earnings upside over the next six-to-nine months, particularly relative to the high end of expectations."
"The companies' high dependency on 'turns' business and relatively high exposure to Europe [20-to-25 percent] makes them particularly vulnerable to recent changes in the market environment," the Salomon analyst added.
Downgrades send other semis lower
Other semiconductor stocks fell along with Xilinx and Altera, adding to Monday's steep losses in the sector. On Monday, the closely watched Philadelphia semiconductor index closed down 41.06 points, or more than 5 percent, to 758.33, a level not seen since late January. On Tuesday, the Soxx lost an additional 79.45 points, closing at 706.51.
The dip came despite indications that the semiconductor industry is in the midst of its strongest sales growth since 1995, when growth was 38 percent. Worldwide, the industry is on track for sales of more than $231.6 billion this year, an increase of 37 percent from last year, according to the market research firm Dataquest.
On Tuesday, Actel (ACTL: Research, Estimates), a maker of field programmable gate arrays, plunged $5.25 to $28.81, a 15.41 percent loss. Analog Devices (ADI: Research, Estimates) lost $8.62 to $69.38, and PMC-Sierra (PMCS: Research, Estimates) dropped $19.06 to $171. The semiconductor equipment company Applied Materials (AMAT: Research, Estimates) also got caught in the downdraft, losing $6.69 to $49.06. Applied Materials is 57 percent below its 42-week high of $115.
Akamai, Nokia drop on analyst comments
The Internet infrastructure company Akamai (AKAM: Research, Estimates) dropped $2.19 to $41.75 after Merrill Lynch analyst Thomas Watts lowered his rating on the stock to "buy" from "accumulate," until the company's "economic model becomes clearer." The Merrill analyst reduced his 12-to-18 month price target on the stock to $54 from $120.
"The $54 price objective represents 17 times 2002 estimated revenue," Watts said in a research note. "The stock currently trades at 28 times 2001 revenue, implying a multiple contraction."
Akamai's stock is down a rather astounding 88 percent from its 52-week high of $345, reducing the company's market value to about $4.5 billion from more than $36 billion at its peak.
Separately, the Finnish mobile phone giant Nokia (NOK: Research, Estimates) declined $2.19 to $34.81 after Bear Stearns analyst Wojtek Uzdelewicz made bearish comments about mobile phone makers and lowered his U.S. earnings per share estimates for the company to 14 cents from 18 cents to reflect a weaker Euro currency translation.
"Growth rates for wireless infrastructure and handsets continue to moderate," the Bear Stearns analyst wrote in a research note. "Disappointing demand for WAP (wireless data) phones and delays with GPRS phones could further impact the handset replacement cycle during the first half of 2001."
Market awaits Yahoo!, Motorola earnings
Tech stocks as a whole closed sharply lower Tuesday, as investors awaited quarterly earnings reports from the Web portal Yahoo! Inc. (YHOO: Research, Estimates) and communications equipment and chip maker Motorola Inc. (MOT: Research, Estimates) after the session's close. The Nasdaq composite index tumbled for a fourth session Tuesday, coming within 80 points of its lowest close of the year, on fresh worries that sales among technology companies will slow in the months ahead.
According to preliminary figures, the Nasdaq dropped 114.62 points, or 3.4 percent, to 3,240.94, bringing its losses for the year to 20 percent. The latest decline puts the index within sight of its lowest close of the year: 3,164.55 on May 23. 
-- Reuters contributed to this report
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