NEW YORK (CNNmoney) - U.S. technology stocks staged a strong comeback late Thursday after trading broadly lower for the better part of the session. But there were pockets of weakness among select tech shares amid lingering profit worries.
The Nasdaq composite index, which is weighted heavily with technology names, ended the session 43.93 points higher at 1,775.47, a 2.5 percent gain on the day.
Shares of Oracle (ORCL: down $0.71 to $13.95, Research, Estimates), the world's No. 2 software supplier, were among the most active on Nasdaq, falling more than 5 percent on the heels of an analyst's downgrade.
Salomon Smith Barney on Thursday downgraded its rating on Oracle shares to "neutral" from "outperform," cut its price target for its shares to $13 from $15, and trimmed estimates for the company's upcoming earnings. The firm cited concerns about valuation, increased competition and lower expectations for revenue and earnings as reasons for the downgrade.
"The competitive landscape in the database, application server and applications market is deteriorating with IBM beginning to get traction in the database and applications server market and multiple vendors exhibiting pricing pressure in applications," Salomon Smith Barney said in a research note Thursday.
Many other software stocks strengthened in afternoon trade. The Goldman Sachs computer software index finished 2.67 points higher at 158.87, a 1.7 percent gain on the day.
Shares of Microsoft (MSFT: up $1.24 to $62.56, Research, Estimates), the world's largest software supplier, were among those ending in the plus column. The company on Thursday announced the commercial availability of the latest version of its operating system software, called Windows XP, and kicked off an ambitious marketing campaign for the new product.
Participants in the flagging PC industry have pinned their hopes Windows XP as a potential catalyst for sales, but most industry analysts are expecting a modest increase at best.
And hanging over the commercial introduction of Windows XP - which has been available pre-installed on new PCs for several weeks - was the company's ongoing antitrust trial. Some of the 18 states that joined the U.S. Justice Department in suing Microsoft are expected to announce that they have hired prominent Washington trial lawyer Brendan Sullivan to help turn up the heat on the software maker, the Wall Street Journal reported Thursday.
The U.S. district court judge overseeing the current phase of the antitrust trial has ordered Microsoft and the Justice Department into settlement talks, with a deadline of Nov. 2.
Some of the state attorneys general have indicated they want Microsoft to modify Windows XP, which integrates many Internet and multimedia elements into the operating system. Microsoft's opponents argue that such integration is evidence that Microsoft continues to operate in an anticompetitive manner.
Other Software makers' shares recouping earlier losses Thursday included: Siebel Systems (SEBL: up $1.30 to $20.00, Research, Estimates); i2 Technologies (ITWO: up $0.24 to $4.95, Research, Estimates); and PeopleSoft (PSFT: up $4.02 to $33.80, Research, Estimates).
At the same time, shares of BroadVision (BVSN: up $0.50 to $2.45, Research, Estimates) rose sharply after it reported its latest quarterly results. The company logged a loss of 6 cents per share, which was 5 cents per share less than analysts generally had expected and said it expects its losses to narrow in the current quarter as it continues to cut costs.
Semiconductor stocks, which were among the top performers in Wednesday's rally, also recovered their losses late in the day. The Philadelphia Stock Exchange's semiconductor index finished 24.12 points higher at 484.97, a 5.2 percent gain on the day.
The stocks of companies that specialize in analog chips, which were pressured the most earlier in the day, staged the strongest comeback.
Merrill Lynch on Thursday reduced its revenue and earnings estimates on three analog chipmakers, saying that its recent expectations for a cyclical upturn in the fourth quarter now appears unlikely.
After upgrading its investment ratings on each of them in September, the firm on Thursday cut estimates for Analog Devices (ADI: up $2.91 to $41.62, Research, Estimates), Maxim Integrated Circuit (MXIM: up $2.46 to $49.11, Research, Estimates), and Semtech (SMTC: up $3.30 to $40.70, Research, Estimates).
Still, Merrill said that none of its thinking about the basic attractiveness of the analog area of the chip sector has changed. But it said the rate at which business will improve now appears to have slowed.
"Whether that is a result of additional inventory that our analysis is not capturing, or very conservative targets being set by company managements, is difficult to say," the firm said.
Other chipmakers took back their earlier losses as well, including microprocessor makers Intel (INTC: up $0.62 to $26.10, Research, Estimates) and Advanced Micro Devices (AMD: up $0.31 to $10.26, Research, Estimates). Shares of computer memory chip maker Micron Technology (MU: up $0.83 to $23.23, Research, Estimates) also ended in the plus column. Shares of Rambus (RMBS: up $0.10 to $9.45, Research, Estimates), which makes money by licensing a technology used to speed up computer memory systems, also took back its earlier losses.
The stocks of companies that make the equipment used to manufacture chips recovered as well. These included: Applied Materials (AMAT: up $2.09 to $37.43, Research, Estimates); KLA Tencor (KLAC: up $4.39 to $45.25, Research, Estimates); Novellus Systems (NVLS: up $2.21 to $36.23, Research, Estimates); and Teradyne (TER: up $1.75 to $23.55, Research, Estimates).
At the same time, shares of networking-equipment maker Foundry Networks (FDRY: down $1.16 to $9.86, Research, Estimates) fell more than 11 percent after it reported its latest quarterly results. The company logged a profit of 2 cents per share, while analysts generally had expected to see profit of 5 cents per share.
Merrill Lynch weighed in on Thursday, cutting its midterm rating on Foundry Networks' shares to "neutral" from "accumulate," saying they currently are fairly valued.
Salomon Smith Barney also cut its rating on Foundry Networks' shares Thursday, and several other brokerages weighed in with negative comments following the company's latest earnings report.
Foundry's bad news led investors to sell off other networking stocks earlier in the session, but many, including Cisco Systems (CSCO: up $0.51 to $17.74, Research, Estimates), Redback Networks (RBAK: up $0.18 to $3.73, Research, Estimates), and Avici Systems (AVCI: up $0.10 to $2.65, Research, Estimates), took back their losses.
Meanwhile, shares of JDS Uniphase (JDSU: up $0.89 to $9.96, Research, Estimates) moved sharply higher as investors awaited its latest results, which were due after the close of trading.
On Sept. 24, JDS Uniphase said it expects to report quarterly sales of $325 million. That's about 9 percent below the $357.4 million analysts previously had expected.
The company, which is the world's largest supplier of the components used to build fiber-optic networking equipment, did not provide an operating profit forecast. The current First Call consensus estimate is for the company to log an operating loss of 3 cents per share.
Shares of Juniper Networks (JNPR: down $0.63 to $26.38, Research, Estimates) failed to recover, ending the session in the minus column.
C.E. Unterberg Towbin analyst Martin Pyykkonen said networking stocks have had a huge run-up in the last month, many as much as 50 percent, and Juniper more than 150 percent.
"I don't know that they've gotten ahead of themselves completely, but certainly they've had a good enough run that it's taken a breather," he said.
He added that another bellwether for the sector will be Cisco's fiscal first-quarter results, which are scheduled to be announced Nov. 5.
The American Stock Exchange's networking index ended the session 10.09 points higher at 290.81, a 3.6 percent gain on the day. 
-- Reuters contributed to this report.
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