Stocks Close Mixed as Techs Slip

A stronger-than-expected report on U.S. productivity offset downgrades on semiconductor companies. Plus: Cisco reports results

Tech stocks ended relatively flat Tuesday after a leading investment firm downgraded a number of European semiconductor companies. Blue chips, meanwhile, closed higher following a better-than-expected economic report on productivity.

Credit Suisse First Boston Corp. noted current company valuations are on average 35% higher than "what's reasonable." The firm also estimates chip sales will fall 30% in 2001 and that 2002 might only see single-digit growth, due to lack of demand and persistent pricing pressures.

And with techs already under pressure, much attention was focused on Cisco Systems (CSCO ). The company that makes equipment that powers the Internet said its fiscal fourth-quarter profits fell 86%, as the economic slowdown continued to plague the tech sector, according to news reports. The San Jose, Calif.-based networking giant said its operating earnings for the quarter ended July 28 were $163 million, or 2 cents a share, compared with $1.2 billion, or 16 cents a share, in the same period last year. Analysts had expected the company to earn 2 cents a share, with a range of nil to 4 cents, according to market research firm Thomson Financial/First Call.

Focusing on the broader market, semiconductor manufacturers, networkers, and personal computer makers were among the underperformers, as jitters over Cisco's report kept traders on edge in the technology arena. Outperforming industries included banks, tobaccos, and beverage makers.

In economic news, productivity at U.S. businesses rebounded sharply in the second quarter, posting its best showing in a year and calmed doubts that gains in worker efficiency of recent years were waning, the Labor Department said. The nonfarm productivity report showed productivity -- the amount of goods and services a worker can create per hour -- rose at a larger-than-expected 2.5% 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% decline.

"The productivity number was big news and came in better than expected, which would tend to indicate that companies are not doing quite as badly as people thought," John Carey of Pioneer Equity Income Fund/A (PEQIX ), told Standard & Poor's.

The Dow Jones Industrial Average gained 57.43 points, or 0.55%, to 10,458.74. The Nasdaq Composite Index was down 6.43 points, or 0.32%, to 2,027.83. The Standard & Poor's 500-stock index gained 3.93 points, or 0.33%, to 1,204.41.

Treasury Market

U.S Treasuries ended lower, after the better-than-expected productivity report. Unit labor costs, a closely-watched gauge of inflation pressures, moved lower in the quarter, increasing at a 2.1% annual rate from the first quarter's revised 5.0 pace. Prior to the release of Tuesday's productivity report, there was much talk on Wall Street about what the data would suggest about the "New Economy." But according to Standard & Poor's research, the revisions, though substantial, do no significantly alter major trends in the U.S. economy in the 1990s.

In other economic news, sales at U.S. chain stores rose, as seasonal clearance sales lured consumers to stores. The pace of sales at U.S. retailers picked up during the four retail weeks in July compared with June, according to a new report. Reuters Instinet Research said its Redbook Retail Sales Average rose 1.9% during the four retail weeks ended Aug. 4 over the same period in June, ahead of the target for a 1.5% increase. Sales rose 1.6% during the first three retail weeks of July.

World Markets

European markets finished mixed, amid concerns about the global economy. In London, the Financial Times-Stock Exchange 100 index added 10.40 points, or 0.14%, to 5,536.80. In France, the CAC 40 was down 14.63 points, or 0.29%, to 5,051.62. In Germany, the DAX Index gained 6.47 points, or 0.11%, to 5,752.51.

In Asia, markets ended mixed. The Nikkei gained 75.56 points, or 0.62%, to 12,319.46, as chip and related shares recovered. In Hong Kong, the market lost 141.62 points, or 1.17%, to 12,007.19.

By Heesun Wee in New York

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