Herbie............................................
Yes, Virginia, There Is a Business Cycle in Sillycon Valley
By HERB GREENBERG
c.1997 San Francisco Chronicle
The only way to justify some of Sillycon Valley's highest stock prices during the latest boom was to say that technology was no longer cyclical. That was before Hong Kong's Hang Seng index and the Korean won became household words in America, proving once again that business cycles can show themselves when you least expect. Just Thursday 3Com warned that the slowdown in Asia will hurt its profits through at least the first half of its fiscal 1999. That's another full year!
Extrapolate 3Com's Asian angst to all of the Valley and I'd say, ''Houston, we have an unbelievably big problem,'' and it doesn't stop with individual companies.
Hear me out: As Asia starts to take its toll on the earnings of those companies, stock prices could continue to fall. As stock prices fall, stock options will lose their value. Suddenly, all of those Sillycon Valley big spenders won't feel so rich. How will that play out in the Valley's hyper-inflated housing market? What about the insatiable demand for $1,200 Breitling watches at Gleim Jewelers in the Stanford Shopping Center?
You can only imagine.
Stephen Levy, director for the Center of the Continuing Study of the California Economy in Palo Alto, says housing prices are likely to become volatile, because many homes will no longer be in the hands of what he calls ''patient money.'' Many homeowners ''have never been through anything like this before, so they have no clue how volatile things can get if a real downturn starts.'' (In 1988, yours truly won a three-way bidding war for a house in Palo Alto, but had trouble giving it away three years later, during that down cycle.)
While the next down cycle may very well be the worst ever for technology, Levy adds that each technology up cycle has been bigger than the previous, ''and that's not going to change.''
In the meantime, no matter how gut-wrenching it gets, Levy hopes it ''will bring everybody's mind back to the fact that this industry is dependent on cyclical markets, and that nothing is forever.''
Amen.
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Surprise, surprise. Iomega announced Thursday it's delaying the rollout of its new Jaz 2 portable drive until next quarter. The company said more ''quality testing'' was needed. It didn't elaborate. However, there have been rumblings for months that the Jaz 2, whose disks can hold 2 gigabytes of data, had problems. The drive uses the same platform as the original 1-gigabyte Jaz.
In the past, this column has reported an alleged high failure rate with the Jaz. Iomega itself announced a recall of Jaz disks earlier this year. However, just last week I heard from Lynne Porterfield, who's in the graphic design business in San Francisco. She said she has returned at least 15 defective Jaz disks over the past nine months, ''and that's conservative.'' Most weren't from the batch that was recalled.
Meanwhile, Tom Santos, owner of Macadam, a San Francisco Mac dealer, says all seven of the Jaz drives he personally owns have quit working.
Where have all of the returned Jaz drives and Jaz disks gone? Will the returns ever show up in Iomega's financial statements? Iomega, as has been its policy, has declined all comment to this column.
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Herb Greenberg can be reached online at bizinsider@sfgate.com, and can be read on The Gate at sfgate.com. |
