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Chip, network stocks vault techs
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December 4, 2001: 4:38 p.m. ET
Upbeat brokerage report, company news spur sector stocks.
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NEW YORK (CNN/Money) - The stocks of semiconductor and networking-equipment makers led the technology sector higher Tuesday following upbeat brokerage comments and a flurry of news involving specific companies.
The Nasdaq composite index, which is weighted heavily with technology names, ended the session 58.20 points higher at 1,963.10, a 3.1 percent gain on the day.
Positive comments by UBS Warburg about the state of the semiconductor industry helped boost the chip segment. Meanwhile, announcements about new contracts and strategic partnerships gave a lift to some of the networkers.
Among semiconductor stocks, shares in companies that make the equipment used to manufacture chips were among the biggest movers and top performers.
UBS Warburg on Monday told its clients it expects the cyclical downturn in chipmakers' new-equipment orders to bottom out this month and declines in chip-equipment makers' revenues to hit bottom in February. The firm also upgraded its ratings on a raft of chip-equipment makers, rescinding its former "hold" recommendations.
Historically, the semiconductor industry has been characterized by boom-and-bust cycles, with periods of tight supply and strong demand followed by spells of overcapacity and slumping profitability. Over the past year, the industry has suffered one of its most punishing downturns ever as the normal cycle, combined with rapidly deteriorating economic conditions, led to heavy losses among many chip companies.
The timing of the upturn in the semiconductor cycle has been the subject of much debate among industry analysts in recent months. UBS Warburg's Byron Walker said he's convinced the upturn has begun, making now the right time to buy chip-equipment stocks.
"While we haven't seen valuations drop to levels to justify a 'valuation call,' our comprehensive modeling of industry dynamics leads us to conclude that the time is now for a 'fundamental call' on the order bottom," Walker said in a note to clients Tuesday.
Among the chip-equipment makers Walker recommends investors buy is Applied Materials (AMAT: up $3.16 to $42.43, Research, Estimates), the market leader. Its shares rose more than 7 percent and were among the top performers on the Philadelphia Stock Exchange's semiconductor index, or Soxx, which rose 33.11 points to 544.11, a 6.5 percent gain.
Walker upgraded another Soxx component, Novellus Systems (NVLS: up $4.24 to $41.70, Research, Estimates), to "strong buy" from "hold," helping to boost its shares about 10 percent.
Also on Walker's list of "strong buys" were Varian Semiconductor (VSEA: up $4.23 to $35.41, Research, Estimates) and Electro Scientific Industries (ESIO: up $6.98 to $35.43, Research, Estimates).
The stocks of most chipmakers also moved higher.
Shares of Intel (INTC: up $0.82 to $32.86, Research, Estimates), the market leader, took back their earlier losses. That stock was pressured Monday and early Tuesday in spite of a growing consensus on Wall Street that executives will provide a relatively optimistic outlook for the quarter when they host a mid-quarter financial update on Thursday.
Micron Technology (MU: up $1.93 to $30.49, Research, Estimates), National Semiconductor (NSM: up $1.95 to $31.35, Research, Estimates) and Linear Technology (LLTC: up $2.97 to $41.73, Research, Estimates) also posted solid gains.
Meanwhile, shares of Cisco Systems (CSCO: up $0.66 to $20.52, Research, Estimates), a top supplier of the hardware used to route data over the Internet, rose after its top executive gave a cautiously optimistic assessment of the business as he kicked off the company's two-day analyst conference.
Also on Tuesday, Cisco announced that Williams Communications (WCG: up $0.06 to $2.32, Research, Estimates) has selected the Cisco ONS 15454 Metro Optical Transport Platform as part of the optical transport backbone for its new on-net metropolitan access networks.
Shares of Extreme Networks (EXTR: up $1.80 to $16.76, Research, Estimates), provider of network infrastructure equipment for business applications and services, got a boost after Salomon Smith Barney upped its price target on them to $23 from $17. The firm said it believes the company's current quarter is tracking ahead of plan, with gross margins picking up a bit due to stable prices and declining component costs.
Meanwhile, shares of Network Appliance (NTAP: up $0.92 to $16.84, Research, Estimates), which makes data-storage systems used in computer networks, were on the rise after it announced a strategic partnership with software maker Oracle. The two companies have teamed up to develop the "Oracle on NetApp Accelerator Service."
Most other networking stocks rose as well. The American Stock Exchange's networking index ended the session 22.97 points higher at 339.56, a 7.3 percent gain on the day.
In addition to Oracle (ORCL: up $0.10 to $13.80, Research, Estimates), several other software stocks were in focus Tuesday.
Shares of Avant (AVNT: up $6.90 to $17.85, Research, Estimates), which makes software used to design semiconductors, soared on news that it is being bought by rival Synopsis for roughly $830 million in stock.
Synopsis (SNPS: down $2.36 to $53.03, Research, Estimates) announced the deal at the same time it lowered its financial targets for the current quarter and the coming fiscal year.
Shares of network security software specialist RSA Security (RSAS: up $0.58 to $16.38, Research, Estimates) rose after it affirmed its revenue guidance for the current quarter, saying that demand for its products remains on track with expectations.
Shares of supply-chain software maker J.D. Edwards (JDEC: up $1.56 to $15.00, Research, Estimates) got a boost after it reported a much stronger-than-expected fiscal fourth-quarter profit. The company logged operating earnings of $20.4 million, or 18 cents per share. Analysts generally had expected a much more modest profit of 4 cents per share.
Quest Software (QSFT: up $0.40 to $23.21, Research, Estimates) shares rose in spite of a downgrade by Morgan Stanley, which reduced its rating on the company's stock to "neutral" from "outperform." The firm cited valuation concerns for the rating change.
Meanwhile, shares of Microsoft (MSFT: up $1.23 to $66.00, Research, Estimates), the world's leading software supplier, moved modestly lower. The company wants to provide financing to two rival bidders for AT&T's cable television unit in hopes of blocking AOL Time Warner from snatching it up, according to a published report Tuesday.
The Goldman Sachs computer software index ended the session 22.97 points higher at 339.56, a 7.3 percent gain on the day. 
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