Another WSJ mention of IO in the context of tech stocks being overpriced and IO such a stock.
FOCUS - Tech stocks face cyclical sales slowdow
By Eric Auchard
NEW YORK, June 19 (Reuter) - Amid growing reports of an emerging slowdown in demand for
computers and certain other high technology equipment segments, jittery investors have
re-discovered that cyclicality remains one of the nasty hidden secrets of the industry.
Liz Buyer, a T. Rowe Price money manager said "It's over-inflated expectations, combined with
seasonal expectations, and pockets of actual weakness," which explains the downturn the sector
has taken in the past two weeks. Traditionally at this time of year, technology investors have had to
weather increasing concerns of a seasonal decline in computer demand among consumers and
business customers tied to business-buying cycles, vacations and other factors.
This issue typically comes to a head for Wall Street in the latter half of June, when the confluence
of the New York PC Expo, one of the worlds larger technology trade-show exhibitions, the Bear,
Stearns investor conference and the closeness to the second quarter earnings reporting period act
to magnify technology stock market volatility. Semiconductor, Internet and computer stock indices
remain far below their year highs.
The Philadelphia Stock Exchange semiconductor index has been heading down since mid-May,
threatening to break 175 and far from the reading's 304 life high from late last summer.
Internet stocks, as gauged by the American Stock Exhange's Internet index, have also lost their
appeal. The index has been eroding over the last month, descending close to the 240 mark from a
life high 277 marked May 20.
Amex's computer technology index has also lost steam recently moving to the 260 mark from
about 280 five weeks ago. "Historically, we have had a summer slow down in technology demand
and last year we did not have a summer slow down," said Janet Ramkissoon, a principal with
Quadra Capital Inc, a portfolio management firm, in New York.
The two analysts were among the more than 1,800 analysts and institutional investors attending the
annual Bear, Stearns technology conference here, where executives from nearly 100 of the leading
technology companies have made presentations over the last three days. Ramkissoon said that
among a new breed of younger, inexperienced portfolio managers and investors, the misconception
has grown up that cyclicality has little place in this business.
However, she noted that at the Bear, Stearns conference, several companies from the personal
computer, networking, and disk-drive industries have reported signs of slowing sales, especially in
Germany, France and other European markets.
Semiconductor stocks have continued to take a beating as well, based on concerns about industry
demand cycles stretching into the years ahead. By contrast, the summer of 1995 was an
exceptional time, coinciding as it did with the dawning of the age of Internet investing, the initial
public offering of Netscape Communications Corp (NASDAQ:NSCP) , the build-up to the
release of Microsoft Corp's (NASDAQ:MSFT) Windows 95 operating system and the derivative
demand for related technologies that resulted.
As a technology investor for more than 12 years, "I am amazed to see how many companies are
selling at over 80 times sales and over 100 times earnings," Ramkissoon said, referring to two
standard measures of stock valuation. She cited Presstek Inc (NASDAQ:PRST) and Iomega
Corp (NASDAQ:IOMG) as examples, and the computer networking sector in general.
"I think people are just getting incredibly scared," said Emeric McDonald, a mutual fund analyst at
Robertson, Stephens Value Plus and Information Age funds, two technology-heavy investment
portfolios.
"As usual the first companies to make comments are the ones that are pre-announcing earnings
shortfalls," he said. "The companies that are going to announce great earnings are in their quiet
periods and not saying anything," McDonald said. "When these companies report blow-out
earnings, it will be clear whos coming out ahead," referring to the rash of earnings reports due
beginning in mid-July.
Such typical quarterly fears may be coming a little sooner than usual, he said, perhaps because
companies attending this conference felt obliged to pre-announce early if they were having
problems. McDonald said the sell-off has gone too far in certain instances, and noted that the
stronger technology names were bouncing back from the broad declines seen throughout the
sector during recent days.
"I think the fundamentals remain very strong for technology stocks with solid track records,"
agreed Alec Murray, assistant vice president of research at Massachusetts Financial Services. "The
difference versus last year is you have to pick the right stocks," referring to last summers
technology investment boom.
As an example, Murray said that, "You see this process working its way through networking
stocks." He said solid names like Cisco Systems Inc (NASDAQ:CSCO) and U.S. Robotics Inc
(NASDAQ:USRX) continue to climb, while Bay Network (NYSE:BAY) is trading significantly
lower.
-- Wall Street desk, 212-859-1730
Regards,
Erik. |
