DJ CSFB's Quattrone Sees Pain Before Hoped-For Gain In 2002
22 May 11:54
By Brian Truscott
Of DOW JONES NEWSWIRES
BARCELONA (Dow Jones)--Investors could see the first signs of a technology
sector recovery when beleaguered companies report fourth quarter earnings in
early 2002, Credit Suisse First Boston's (z.CSF) Frank Quattrone said Tuesday.
However, the well-regarded head of CSFB's technology group sounded far from
certain that 2002 would bring welcome good news, because the second and third
quarters will likely be harbingers of more bad earnings news.
"The September quarter is historically not a good quarter for (technology)
companies," he said, speaking at a briefing for reporters at the three-day CSFB
European Technology Conference in Barcelona.
A poor third quarter might go some way towards adjusting downwards earning
multiples that are still seen as too high.
U.S. tech bellwether, Cisco Systems Inc. (CSCO), for example, is trading at
50 times earnings.
The problem is only exacerbated in Europe, where a scarcity-value in large,
liquid technology companies leaves investors with little choice but to invest
in the likes of Nokia (NOK), SAP AG (SAP), ST Microelectronics and Cap Gemini
Ernst & Young.
Quattrone said the high multiples worry him, because the consequences can be
severe when a company with a 50 times to 60 times multiple - but no visibility
on sales - misses out on forecasts.
He said investors shouldn't expect a V-shaped recovery; that it will probably
be early 2002 at the earliest before the first signs of a corporate resurgence
brings much-welcomed market stability.
Quattrone said investors looking for the first signs of a turnaround in the
technology and IT services sector should watch for evidence that margins,
book-to-billing ratios and prices for commoditized products are moving higher.
The senior banking executive said such signs would underpin business
confidence, which would be a catalyst fora rebound in mergers and acquisition
activity as well as initial public offerings.
It's no surprise that the IPO market has dried up following last year's
dot.com carnage.
In the first four months of 2001, new Nasdaq-listed companies have tapped the
market for a paltry $17 billion - a level not seen since the mid-1990s.
In 2000, companies exploited the dotcom frenzy by going to the market to
raise more than $150 billion.
The absence of mergers and acquisitions is perhaps a surprise, given that
valuations have fallen off a cliff.
But Quattrone said the dramatic fall in company valuations has created a
"reality distortion field," meaning company executives have yet to come to
grips with the new, lower valuations or prices that are being offered by
potential suitors.
A few quarters of market stability, he noted, would do much to alleviate that
distortion, paving the way for much-needed consolidation.
David Clayton, head of CSFB's software and IT services research team, said
once sentiment does rebound, technology sector valuations could soar, because
there are a number of cash-rich investors keen to invest, but only when market
visibility becomes more transparent.
Clayton, speaking at the same briefing, still believes European companies
will have to report bad news in the second and third quarters, because there is
still too much capacity in the market.
-By Brian Truscott, Dow Jones Newswires; 44 77601 77735;
brian.truscott@dowjones.com
-0- 22/05/01 15-54G
(END) DOW JONES NEWS 05-22-01
11:54 AM |
