Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.
By Cynthia L. Webb washingtonpost.com Staff Writer
Monday, July 12, 2004; 9:33 AM
A spate of earnings warnings last week from major tech companies reveals that the tech industry is experiencing a lingering hangover from the dot-com crash – and concerned investors are taking note.
"A suddenly nervous Wall Street wants proof that the economy is as good as its hype. Rattled by some surprisingly downbeat economic news in recent days, investors are looking to this week's second-quarter earnings reports to support the bullish case for the U.S. expansion. That case wasn't helped last week, when a stream of technology companies warned that quarterly results would fall short of expectations and major retailers said that June sales were disappointing. The data compounded concerns raised a week earlier by the government's report on June employment trends, which pegged job creation for the month at less than half what was anticipated," the Los Angeles Times wrote today.
• Los Angeles Times: Investors Look To Earnings For Picture of U.S. (Registration required)
Gretchen Morgenson of The New York Times wrote about the tech sector's falling fortunes in a column yesterday. "The warnings from technology companies came fast and furious last week, cuffing investors who had bought their shares on hopes of super earnings generated in a hot economy. Individual investors and hedge funds alike had piled into tech stocks and enjoyed the ride through 2003, convinced that 2004 results would justify the shares' soaring prices. But with software companies like Siebel Systems and Veritas Software, hardware companies like Unisys and computer resellers like the CDW Corporation and Ingram Micro Inc. cautioning that their businesses softened in the second quarter, the sound of air escaping a balloon is more than detectable. Inquiring investors want to know: Is this a blip, or is the second-quarter slowdown the beginning of a longer-term malaise in tech?" Morgenson wrote. "Fred Hickey, editor of The High-Tech Strategist in Nashua, N.H., and a technology stock analyst who knows the industry down to its nittiest and grittiest, says the setbacks in the sector are just beginning. ... The semiconductor stock index, known as the SOX, is down 11.2 percent this year, and spot prices of computer chips are forecasting further declines. But the biggest trouble spots on Mr. Hickey's horizon are the ballooning inventories on tech companies' balance sheets. Already rising in the first quarter, these inventories will probably show a surge for the second quarter, he said, because few tech companies appear to have cut production in recent months."
Morgenson hedged her bets in the end: "Perhaps the companies issuing early warnings recently will prove to be in the minority by the time all second-quarter results are out. But technology has had a heck of a run in the past year. As they say, nobody ever went broke taking profits."
• The New York Times: That High-Tech Balloon Is Going Ssssssssss (Registration required)
More on last week's hits to the tech sector. "Economic news from across the country supports the perception of a fragile recovery for the tech sector. Over the past week, a host of software companies have warned that second-quarter revenues would fall below expectations. Veritas Software Corp., a major maker of storage software; database software firm Sybase Inc.; and business management software makers PeopleSoft Inc. and Siebel Systems Inc. were among those reporting weaker-than-expected sales. And in a memo this week, Microsoft Corp.'s chief executive, Steve Ballmer, said the software firm plans to cut expenses by $1 billion," The Boston Globe wrote on Friday. "In addition, many technology firms are still shedding workers. The outplacement firm Challenger, Gray and Christmas Inc. said yesterday that although job losses have slowed at electronics, telecommunications, and electronic commerce firms, second-quarter job cuts at computer companies have increased 179 percent over the first-quarter level."
The article zeroed in on the Boston area's tech sector, though the observations could prove true for other regions: "Boston-area tech executives say the computer industry comeback is real enough, but not strong enough. Corporate customers are still holding back on big purchases, they say, and that means sluggish revenue growth and a reluctance to hire more workers."
• The Boston Globe: Tech Sector On Mend, But Weak
The warning from Unisys provided a glimpse at a problem affecting other tech companies as well. See this evidence from a an AP/Dow Jones report: "Revenue from hardware sales is expected to decline in the 'low double digits' percentages. A year earlier, hardware revenue were $261.6 million. Unisys attributed the shortfall to 'unexpected deferrals' of certain computer server contracts, and deferrals and delays on information-technology services projects late in the quarter. The weakness was primarily in the United States and Latin America. Although Unisys isn't a software company, its warning had something in common with other recent software sector pre-announcements: customers deferred purchases late in the quarter."
Silicon.com pondered the possibility that a tech crash is happening again. "The writing on the wall looks ominous. A long list of tech stalwarts, including BMC, Business Objects, CA, PeopleSoft, StorageTek, Unisys, Veritas and Yahoo!, have seen their stocks fall – sometimes quite dramatically – in recent days and weeks, often on the back of warnings about quarterly figures. Meanwhile the Nasdaq high-tech index once again fell yesterday (Thursday) after a dismal week," the news site said. "One well-known UK analyst, Ovum's Richard Holway, is saying what many others dare not say: tech stocks are once again over-valued – and he called a market correction well before now. Although the bad news seems to be gathering pace this week, Holway has been bearish on tech stocks for some time, countering the wave of optimistic sentiment from some camps that has accompanied the tech recovery of the past 12 months or so." Holway told the publication: "There are a high number of people [in the industry] who are desperately hoping things are on the up but at the end of the day you have to face reality. You cannot justify sky-high valuations on the basis of single-digit growth."
• Dow Jones and AP via the San Jose Mercury News: Unisys Shares Down On Earnings Warnings (Registration required)
• Silicon.com: On The Brink of Another Tech Crash?
Buy Cheap
One of these ailing companies is the target of a surprise acquisition bid. "CyberGuard Corp., moving to capitalize on last week's software-industry turmoil, launched an unsolicited $297 million stock offer for rival information-technology security systems provider Secure Computing Corp.," The Wall Street journal reported today. "CyberGuard, Ft. Lauderdale, Fla., made its move five days after Secure, San Jose, Calif., said it would miss its second-quarter earnings targets. Secure's shares fell to a 52-week low of $6.11 Thursday before closing at $6.37 a share Friday. With CyberGuard's shares closing Friday at $7.80, the 1-for-1 stock swap represents a 22% premium. Secure was one of several software companies that reported trouble closing deals in June, prompting fears of a broader technology-industry slowdown. Computer security has been one of the software industry's bright spots, but the sector has dozens of small companies, many with similar offerings," the article said.
