Chip Downgrade Weighs on Tech Stocks

NEW YORK – Technology stocks slipped Tuesday after a leading investment firm slashed the investment rating on major chip and chip-equipment makers, reigniting worries a corporate-profit recovery will be farther off than expected.

Still, a generally positive government report on U.S. workers' productivity quieted worries that profit-boosting worker efficiency was on the wane.

The technology-heavy Nasdaq Composite Index slipped 6.47 points to close the day at 2,027.79.

But the broader market ended higher, with blue-chip Dow Jones industrial average gaining 57.43 points at 10,458.74 and the Standard & Poor's 500 Index rising 3.92 points to 1,204.40.

Productivity at U.S. businesses rebounded sharply in the second quarter, posting its best showing in a year and quieting doubts that the gains in worker efficiency of recent years were waning, the Labor Department's said in its nonfarm productivity report.

The report showed productivity -- the amount of goods and services a worker can create per hour -- rose at a larger-than-expected 2.5 percent annual rate in the second quarter. That was up substantially from a 0.1 annual pace seen in the January-March quarter, which was itself an upward revision from an initially reported 1.2 percent decline.

``Productivity numbers came in pretty good, and the labor-cost unit is pretty low, showing there's no inflation,'' said Peter Cardillo, research director at Westfalia Investments. ``Investors believe we're beginning to stabilize and we'll see (economic) growth accelerate in the fourth quarter.''

Volume was likely be light all day, as Wall Street waited to see Cisco System Inc.'s profit report, expected after the market close, for a sign of whether the business outlook is improving for large technology firms.

Weakness in semi conductor stocks limited gains among tech stocks after investment firm Credit Suisse First Boston slashed its investment rating on chip and chip-equipment makers, such as Applied Materials and KLA-Tencor, saying they were too expensive given weak global economies.

``Credit Suisse First Boston is making a bet these stocks are ahead of themselves and they're probably right, but people are concluding fundamentals have already bottomed,'' said Joseph Ranieri, managing director in trading at Adams, Harkness & Hill.

Applied Materials fell $1.93 to $46.80, and KLA-Tencor dropped $3.28 to $54.67.

CSFB also slashed its ratings on makers of chips used in communications and diversified electronics applications, such as Applied Micro Circuit, which fell 66 cents to $18.28.

``No one's going to stick their hand up and say, 'Now is the good time to buy.' We need some good news first,'' said Mike Murphy, head of trading at First Union Securities Inc. in Baltimore.

Some profit warnings from top firms rattled investors.

Serena Software Inc. slumped $4.35 to $14.75 after saying its earnings and revenue would fall short of expectations and that it would lay off 12 percent of its work force because of the sluggish economy.

CDW Computer Centers Inc. fell $2.58 to $43.24. The company's July sales were flat and it was uncertain it would be able to meet August and September sales targets amid the slowing economic environment. The technology reseller also lowered its third-quarter earnings and revenue guidance.

Conseco Inc. slumped $2.50, or 17.61 percent, to $11.70, a day after the insurance and loan group posted a loss and warned that full-year earnings might be lower than expected.

The insurer's stock is down from a high of $50 two years ago, dragged down by a host of problems from its acquisition of loan firm Green Tree Financial for $6 billion in 1998.

The recent surge of merger announcements continued. Collins & Aikman Corp., a maker of automotive floor mats and acoustic systems, is buying Textron Inc.'s automobile trim business for $1.3 billion.

Textron climbed $1.90 to $56.90, while Collins lost 1 cent to $8.19.

Airplane maker Boeing slipped $1.61 to $56.79 after European rival Airbus cut its target for 2003 deliveries and was discussing delivery delays with a number of airlines.

The Russell 2000 index, which measures the performance of smaller company stocks, slipped 0.63 to 480.33.

Overseas markets were mixed Tuesday. Japan's Nikkei stock average finished the day up 0.6 percent. In Europe, Britain's FT-SE 100 rose 0.2 percent, and Germany's DAX index inched up 0.1 percent, while France's CAC-40 fell 0.3 percent.

-- Reuters and the Associated Press contributed to this report.