NEW YORK (CNNfn) - Technology stocks lagged a broader rally in the U.S. stock markets Thursday as investors weighed concerns about profitability among companies in some tech segments against hopes of renewed growth in others.
The stocks of telecommunications and data-networking equipment makers, many of which already have warned of weaker quarterly results, were further pressured following yet another earnings warning.
The American Stock Exchange's networking index finished 7.88 points lower at 321.79, a 2.4 percent decline.
Semiconductor stocks moved broadly lower as well, amid further signs of weakness in demand and downbeat comments from analysts that cover the industry for two leading Wall Street brokerages.
The Philadelphia Stock Exchange's Semiconductor index, or Soxx, remained in the minus column all day, ending the session 2.86 points lower at 584.97.
But the Nasdaq composite clung to modest gains, finishing 38.50 points higher at 2,031.16, a 1.9 percent gain on the day. The tech-laden index was buoyed in part by software stocks, which added to the gains they posted Tuesday following better-than-expected quarterly results and upbeat forecast from Oracle, the No. 2 supplier.
Telecom, networking stocks sink
Among the telecom and data-networking equipment makers, shares of Tellabs (TLAB: down $5.16 to $16.04, Research, Estimates) fell more than 24 percent after it warned late Tuesday of a substantial shortfall in the second quarter. The company said sales would be 36 percent below Wall Street's most recent expectations and it will break even for the quarter, compared with a recent consensus forecasts for a profit of 29 cents per share.
It was the latest such company to warn of weaker-than-expected quarterly results and further pressured other stocks in the telecom and data-networking area.
Others moving lower Wednesday included Nortel Networks (NT: down $0.36 to $8.01, Research, Estimates), Lucent Technologies (LU: down $0.19 to $5.31, Research, Estimates), and Cisco Systems (CSCO: down $0.24 to $16.40, Research, Estimates).
Shares of Ciena (CIEN: up $0.72 to $37.46, Research, Estimates) finished on the upside, despite an analyst's downgrade. Merrill Lynch analyst Michael Ching on Wednesday cut his intermediate-term rating on the company's shares to "neutral" from "accumulate," saying that the company's recent gains in market share will not be enough to offset the broader decline now expected in the market. He maintained a long-term "buy" rating on the stock.
Chips slip as demand weakens
In the semiconductor segment, the stocks of companies that make the equipment to manufacture chips were among the biggest losers earlier in the session, but many took back some of their losses in late afternoon trade.
Shares of Asyst Technologies (ASYT: down $0.53 to $15.95, Research, Estimates) fell more than 3 percent. The company, which makes robotic equipment for semiconductor manufacturing, late Tuesday cut its first-quarter revenue expectation from $75 million to a range between $65 million and $70 million, citing weak demand.
Other chip-equipment makers moving lower Wednesday included Cymer (CYMI: down $1.75 to $26.15, Research, Estimates); Teradyne (TER: down $3.15 to $35.00, Research, Estimates); and Semitool (SMTL: down $0.17 to $10.96, Research, Estimates).
Applied Materials (AMAT: up $0.05 to $48.36, Research, Estimates), the No. 1 supplier, and Novellus Systems (NVLS: up $0.28 to $51.01, Research, Estimates) took back their earlier losses, ending the session in the plus column.
Also weighing on the semiconductor segment Wednesday was an announcement from Toshiba, Japan's leading chipmaker, which said it will temporarily cut chip output this summer. Japanese chipmakers previously had said they were very optimistic about a recovery in demand during the second half of the year, a forecast that some industry observers now are questioning in light of the company's announcement.
German chipmaker Infineon Technologies (IFX: down $4.45 to $25.40, Research, Estimates) also warned of weaker quarterly results Wednesday, driving its shares nearly 15 percent lower on the New York Stock Exchange.
U.S. based chipmakers moving lower Wednesday included Advanced Micro Devices (AMD: down $1.04 to $23.95, Research, Estimates); Micron Technology (MU: down $1.18 to $36.84, Research, Estimates); and National Semiconductor (NSM: up $0.16 to $26.30, Research, Estimates).
At the same time, shares of Intel (INTC: up $0.82 to $27.49, Research, Estimates), the world's largest chipmaker, finished more than 3 percent higher, despite bearish comments from Lehman Brother analyst Dan Niles, who cut his earnings estimates on both Intel and AMD on Wednesday.
Niles cited continued deterioration in demand for personal computers, and increased price competition for both PC processors and flash memory chips as the reasons for the reductions.
"We remain negative on PCs and semis and believe there is still downside risk to estimates and stock prices," Niles said in a note to clients Wednesday.
Meanwhile, Goldman Sachs analyst Nathaniel Cohn cut his estimates on four of the leading companies that specialize in chips for telecommunications and data-networking equipment. But their stocks posted mixed results Wednesday.
Citing continued deterioration in demand and expectations for another sequential revenue decline in the current quarter, Cohn reduced his estimates for Applied Micro Circuits (AMCC: up $0.57 to $14.07, Research, Estimates), PMC Sierra (PMCS: up $0.54 to $25.39, Research, Estimates), Vitesse (VTSS: down $0.08 to $17.04, Research, Estimates), and Conexant (CNXT: down $0.22 to $7.38, Research, Estimates).
"With several recent earnings warnings from key customers and still high inventory levels, we believe the downturn will cut deeper and last longer than current estimates suggest," Cohn said in a note to clients Wednesday.
Software escapes sell-off
Bucking the broader downturn in the tech sector Wednesday were software stocks, which continued to move higher following an upbeat outlook from Oracle, the world's second-largest supplier. On Monday, the company reported quarterly earnings that edged past the Street's estimates and said the most recent quarter may have been the bottom of the slowdown in spending which has weighed on the software industry for several quarters.
Shares of Oracle (ORCL: up $0.76 to $17.52, Research, Estimates) rose 4.5 percent Wednesday. They were among the most actively traded on Nasdaq.
Other software stocks moving higher Wednesday included: Siebel Systems (SEBL: up $1.57 to $43.47, Research, Estimates); i2 Technologies (ITWO: up $0.76 to $17.88, Research, Estimates); BMC Software (BMCS: Research, Estimates); BEA Systems (BEAS: up $1.67 to $30.74, Research, Estimates); and PeopleSoft (PSFT: up $4.08 to $44.70, Research, Estimates).
Shares of Microsoft (MSFT: up $2.09 to $69.41, Research, Estimates), the world's largest software maker, ended the session more than 3 percent higher. 
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