March 19, 1997 6:15 PM ET
Bearish remark, bad news from 3Com, Cisco tumble tech stocks
By Margaret Kane

  Tech stocks plunged today, reacting to bad news from the networking sector and bearish comments from an analyst at Morgan Stanley & Co.

A Wall Street Journal article quoted Morgan Stanley analyst Barton Biggs as saying that the "tech cycle has peaked," and predicted slower growth.

Major bellwethers such as Intel Corp., IBM and Microsoft Corp. did not escape the downturn. Intel ended the day down $3.125 at $133.625, IBM fell $1.50 to $137.875, and Microsoft dropped $2.875 to $96.75.

Earlier this week, officials at 3Com Corp. and Cisco Systems Inc. were quoted as saying their markets were slowing.

Cisco CEO John Chambers said at a Bloomberg Business News conference that the company saw softness among ISP (Internet service provider) customers, because ISPs were focusing on strengthening profits rather than expanding their networks. A Cisco spokesman confirmed that the company "does continue to see growth, but not at the rate it has been in the past."

Sales to ISPs and Regional Bell Operating Companies make up about one-third of Cisco's business.

At the same conference, 3Com CEO Eric Benhamou told investors that weak revenue growth in January continued to plague the company throughout the quarter. 3Com will report its third-quarter earnings after the market closes tomorrow.

Cisco and 3Com both traded much lower during the day. By the close, 3Com was down $1.56 to $32.19, and Cisco was down 38 cents to $50.

Other networking stocks fell off, including Cascade Communications Corp., down $1 to $24.375, and Ascend Communications Inc., down 2.375 to $45.75.

Despite the Cisco and 3Com comments, some analysts said there may still be strength in those markets.

"Most Internet companies have seen [per customer] Internet usage go from 5 to 15 hours a month. With things like push, etc., coming in the second half [of the year], that puts additional demands on the network infrastructure," said Michael Parekh, an analyst at Goldman Sachs & Co., in New York. "So the companies will continue to need ongoing investments in their networks."

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