Most technology stocks are being dragged down again today after a gloomy statement from Advanced Micro Devices Inc. (NYSE: AMD) stirred new worries over the tumbling economy. Novellus Systems Inc. (NASDAQ: NVLS) is joining the market anxiety after issuing a warning related to its earnings numbers. The company slashed its first-quarter earnings outlook, and said it expects revenues at the low end of the earlier expected range.

The semiconductor equipment maker now expects first-quarter earnings in a range between 15 cents and 17 cents per share, down from its previous range of 21 to 24 cents. Quarterly revenues are expected to be at the low end of the previously communicated range of $315 million and $325 million. Analysts were waiting for Novellus Systems show quarterly earnings of 23 cents a share on sales of $319.4 million, according to Reuters Estimates.

This morning, Novellus Systems Inc (NASDAQ: NVLS) announced that it anticipates second quarter bookings, shipments, revenues and earnings per share to come in at the low end of the guidance range it previously provided on May 31st. The semiconductor equipment maker previously forecast Q2 results of 42c-45c/$410M-$420M vs. Reuters consensus of 44c/$415.61M.

The company, which makes equipment to help turn silicon wafers into computer chips, believes its earnings will be lower because of a weak semiconductor market. Novellus said theses industry declines will lead to cost cutting initiatives in the second half of the year, including a reduction in executive salaries for the rest of the year and company shutdowns in the third and fourth quarters.

Novellus is one company among several that have lowered expectations for the rest of the year. Due to a surplus in chips, companies have had to cut prices. Applied Materials Inc (NASDAQ: AMAT), for example, also predicts declines in global chip sales growth for the rest of 2007.

In the technology sector this morning, the profit warning from Novellus was offset by an upgrade of Intel Corporation (NASDAQ: INTC) by Lehman Brothers.

MOST NOTEWORTHY: Nokia (NOK) and Pfizer (PFE) topped today's list of downgrades.

• Prudential downgraded Nokia Corporation (NYSE:NOK) to Neutral from Overweight to reflect what they believe will be a slowing of the handset market in 2007, as well as the company's pending legal battle with Qualcomm (NASDAQ:QCOM).
• Following the unexpected halt of Torcetrapib, Pfizer Inc. (NYSE:PFE) was downgraded by a multitude of companies: At Lehman, to Underweight from Overweight; at JP Morgan, to Neural from Overweight; at Merrill Lynch, to Neutral from Buy; and at Morgan Stanley, to Equal Weight from Overweight.

OTHER DOWNGRADES:

• Onyx Pharmaceuticals Inc. (NASDAQ:ONXX) was downgraded to Neutral from Overweight at Prudential following the failure of their Phase III melanoma trial.
• Alcatel-Lucent (NYSE:ALU) was downgraded to Sector Perform from Outperform at RBC Capital Markets; the firm expects limited near-term revenue momentum from integration risks and internal/external uncertainties.
• ThinkEquity downgraded Novellus Systems Inc. (NASDAQ:NVLS) to Accumulate from Buy, as they believe Novellus is no longer deeply undervalued and only expects a gradual margin expansion from here.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Analysis provided by Paul Foster of Theflyonthewall.com:

U.S. stocks sold off on a disappointing November manufacturing survey and further weakness in the dollar. The Dow down 0.82%, NASDAQ 100 down 1.32%, S&P 500 down 0.76%, and the 10 year bond rates decreased to 4.425%. The CBOE VIX was up 1.00 to 11.89.

Novellus Systems, Inc. (NASDAQ:NVLS) implied volatility near elevated as NVLS trades up to 30-month highs. NVLS develops, manufactures, sells and supports equipment used in the fabrication of integrated circuits. CIBC say's "NVLS up $2 intraday as speculation re-surfaces on Tokyo Electron LTD (TEL) buyout. This AM, our high-level sources at both TEL and Hermes Epitek (TEL's distributor in Taiwan) flatly denied talks are in progress." NVLS call option volume of 21,883 contracts compares to put volume of 43.442 contracts. NVLS December option implied volatility of 50 is above its 26-week average of 36 according to Track Data, suggesting larger price fluctuations.

Diamond Offshore Drilling, Inc. (NYSE:DO) implied volatility increased on heavy volume as DO rallied. DO, a drilling service provider to the energy industry, was recently up $2.78 to $80.40. DO has a market cap of $10.3 billion with long term debt of $965 million. MOKE issued a report suggesting DO, NE & ESV are possible acquisition candidates of SeaDrill. DO call option volume of 9,844 contracts compares to put volume of 3,271 contracts DO over all option implied volatility of 38 above a level of 31 this morning and near its 26-week average according to Track Data, indicating non-directional fluctuations.

Option volume leaders today were The Home Depot, Inc. (NYSE:HD), Apple Computer, Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Ford Motor Company (NYSE:F), and ExxonMobil Corporation (NYSE:XOM).