Discussion of Robertson Stephens IT downgrade .. from Briefing
IT Spending Downgrades : Robertson Stephens has started off the new year by downgrading a number of Internet infrastructure names in expectation of weak IT spending in the first half of this year. Content delivery downgrade victims include CacheFlow (CFLO) and Inktomi (INKT). In the storage space, EMC (EMC), Network Appliance (NTAP) and Veritas (VRTS) were all cut and Internet security downgrade
recipients include Internet Security Systems (ISSX) and Verisign (VRSN). Those are just the more widely held issues that were included in Analyst, Dane Lewis' call this morning.
The rationale for the sweeping downgrade is an expectation of slower IT spending caused largely by:
1) macroeconomic issues/fear of a recession;
2) the absence of large IT spending budgets from VC-backed or newly public companies;
3) decreasing competitive threat from dotcoms allowing traditional brick and mortars to
slow their infrastructure spending. Lewis also cites last year's post-Y2K spending as making for tough comparisons.
None of those issues are new, and to a great extent in some cases and a lesser extent in others, the concerns have already been priced into the stocks. Of the seven companies that we've mentioned here, six have shed 30% to 85% of their market capitalization since September. Only ISSX has remained in positive territory over that period, and it is the most lightly traded issue of the seven by a wide margin. While the issues raised are certainly legitimate and real, they are not new. However, the extent of the budget slowdown, and its effect, is anybody's guess at this point. These downgrades will definitely keep pressure the Nasdaq
today, but keep in mind that these names have already been severely punished and the lowest of the new ratings is still LONG TERM ATTRACTIVE.
- Matt Gould, Briefing.com
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