NEW YORK (CNN/Money) - U.S. technology stocks fell Friday as investors turned cautious on the sector following the latest corporate earnings results from industry bellwethers Microsoft and IBM.
An upside earnings pre-announcement from Dell Computer also failed to thrill Wall Street, which apparently already had expected the No. 1 PC supplier to raise its estimates for the quarter.
The Nasdaq composite, which is weighted heavily with technology names, ended 55.47 points lower at 1,930.35, a 2.8 percent decline.
Shares of software leader Microsoft (MSFT: down $3.76 to $66.10, Research, Estimates) were among the most actively traded on Nasdaq, moving sharply lower after it turned in a better-than-expected profit for the most recent quarter but at the same time warned of weakness in the coming months.
After Thursday's close, Microsoft, the world's largest supplier of computer software, logged a fiscal second-quarter operating profit that beat most analysts' expectations. But at the same time, executives said they see continued weakness in the PC market and lowered their financial targets for the fiscal year ending in June.
That was enough to send investors, who have driven the company's shares sharply higher in recent months, scrambling for the exits.
Other software stocks followed Microsoft lower. Shares of companies including Oracle (ORCL: down $0.74 to $16.48, Research, Estimates), which ranks No. 2, Siebel Systems (SEBL: down $1.05 to $34.26, Research, Estimates), BEA Systems (BEAS: down $1.05 to $18.80, Research, Estimates), and SAP (SAP: down $0.91 to $35.39, Research, Estimates) all sank Friday.
The Goldman Sachs computer software index fell 5.84 points to 185.14, a 3.1 percent decline on the day.
Microsoft also is a component of the Dow Jones industrial average, which finished 78.19 points lower at 9,771.85.
Also weighing on the Dow Friday were shares of IBM (IBM: down $5.65 to $114.25, Research, Estimates), which fell more than 5 percent.
That decline came after IBM logged a fourth-quarter profit that met Wall Street's expectations but fell far short of its revenue target, blaming weakness in its PC, hard drive and electronics components businesses.
At the same time, shares of Sun Microsystems (SUNW: down $0.25 to $12.12, Research, Estimates), a leading supplier of servers and high-end computer workstations, also fell after it reported its latest quarterly results.
Before the U.S. markets opened Friday, Sun posted a loss for its fiscal second quarter that was a little bit narrower than most analysts had expected. Executives of Sun also forecast "a slight rise" in revenue during the current quarter, where Wall Street recently had expected an increase of about 29 percent.
The stocks of most other computer hardware makers also finished lower.
Shares of Dell (DELL: down $0.85 to $28.10, Research, Estimates), the No. 1 PC maker, were among those ending in the minus column. The stock fell even after the company said its fourth-quarter results were stronger than expected.
The company raised its revenue estimate by about $300 million and bumped up its earnings per share estimate a penny to 17 cents. It is expected to report the full results on Feb. 14.
Compaq (CPQ: down $0.28 to $11.52, Research, Estimates) shares, which rose sharply on Thursday following the release of its latest earnings report -- which provided some glimmers of hope for improvements in the months ahead -- gave back their gains.
Shares of Hewlett-Packard (HWP: down $0.92 to $22.61, Research, Estimates) also finished lower. Gateway (GTW: down $0.42 to $6.51, Research, Estimates) fell deep into the minus column as well.
The Goldman Sachs computer hardware index finished 8.62 points lower at 266.04, a 3.1 percent decline on the day.
Stocks in most other technology segments ended lower as well.
Among chipmakers, shares of Intel (INTC: down $1.05 to $33.48, Research, Estimates), Advanced Micro Devices (AMD: down $0.47 to $16.81, Research, Estimates), Texas Instruments (TXN: up $0.09 to $27.54, Research, Estimates) and Xilinx (XLNX: down $1.99 to $41.07, Research, Estimates) were among those ending in the minus column.
The stocks of companies that make the equipment used to manufacture semiconductors also were pressured. Moving lower were shares of Applied Materials (AMAT: down $1.25 to $40.35, Research, Estimates), KLA Tencor (KLAC: down $1.23 to $49.92, Research, Estimates), Novellus Systems (NVLS: down $1.03 to $37.84, Research, Estimates), Teradyne (TER: up $0.15 to $27.15, Research, Estimates) and others.
Chip-equipment makers fell under pressure earlier this week after Intel, which accounts for about 20 percent of the total spending on such equipment, announced that it had slashed its capital budget for 2002 nearly 25 percent from last year's level.
The Philadelphia Stock Exchange's semiconductor index, which lists 16 chip and chip-equipment makers, ended 16.42 points lower at 523.13, a 3 percent decline on the day.
The stocks of telecom and data-networking equipment makers also moved broadly lower.
Shares of Nortel Networks (NT: down $0.24 to $7.50, Research, Estimates), a top supplier of fiber-optic network equipment, fell after it logged a quarterly loss that was in line with what analysts generally had expected but forecast a larger-than-expected decrease in revenue in the current quarter.
Other telecom and data-networking equipment makers ending lower included: Nortel Networks (NT: down $0.24 to $7.50, Research, Estimates); Cisco Systems (CSCO: down $0.63 to $18.85, Research, Estimates); Juniper Networks (JNPR: down $0.52 to $17.00, Research, Estimates); and Redback Networks (RBAK: down $0.22 to $4.50, Research, Estimates).
The American Stock Exchange's networking index fell 9.18 points to 319.72, a 2.8 percent decline. 
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