Investors fled the technology sector yesterday amid a barrage of profits warnings and fears that the US central bank would not cut rates again soon.
The economic fallout from cost-cutting US companies has spread across the Atlantic. Workers at Motorola's Swindon plant, which employs 1,600 people, were sent home on Thursday night, raising fears that Britain would be hit by the company's plan to cut 4,000 jobs worldwide.
The Nasdaq composite index in the US fell more than 4% to 2,436 within a few hours of opening yesterday, erasing all of the past week's gains. Worst hit was the telecommunications sector after Nortel Networks, which makes fibre-optic equipment, slashed its forecasts for revenues and earnings this year, blaming the downturn in the US economy.
Also hit in London was BT after Standard & Poor's, the credit ratings agency, threatened to strip the company of its top-flight mark of approval. S&P said BT's "inability to adequately communicate a debt reduction strategy" meant it might lose itsA series credit rating, which BT has promised to maintain by cutting £10bn off its debt.
The statement was seen as a slap in the face for BT, because it gave S&P confidential information last year on its restruc turing proposals to stave off a ratings cut. S&P cut its rating on France Télécom, owner of Orange, to A- from A.
Vodafone lost 5.4 % after the company said a regulatory inquiry could derail plans for the sale of its Italian telecoms group, Infostrada. The telecoms group wiped 32 points off the FTSE 100, which closed down 109.6 points or 1.8% at 6,088.3, its lowest close since January 16.
In the US, Kenneth Sheinberg, head of listed trading at the brokerage SG Cowan, offered a bleak outlook for the next few months. "There is no positive news out there so there's no reason for the market to go up. And there won't be for at least two quarters."
Other leading technology companies to have disappointed investors with a gloomy outlook this week included JDS Uniphase, the supplier of fiber-optics components, Hewlett Packard, the computer group, and Dell, the world's biggest direct seller of computers. All three fell yesterday while Nortel lost 33% of its market value.
A Motorola spokesman said the company had started a "consultation process" with employees in Swindon to decide how redundancies would be allocated. "No decisions have been made or will be made until after the consultation next month. Job cuts are only one of several possible options we are looking at."
