Don't Bet on Nasdaq Rebound Any Time
Soon
By Nick Olivari
NEW YORK (Reuters) - Forget one-day rallies in the beaten-down
Nasdaq stock market.
The tech-heavy Nasdaq Composite Index (^IXIC - news) will not
reach the dizzying heights of March last year, when it peaked above
5,000, any time soon, money managers say. It could even be years
before the index recoups its 56 percent loss since then.
``There is a concern we won't get the big rebound,'' said Donald Berdine, chief investment officer at
Pittsburgh-based PNC Advisors, which oversees $43 billion in assets. ``We may not see 3500 for
years.''
That's because many of the reasons driving the growth in sales and profits for telecommunications and
Internet equipment companies during the late 1990s no longer exist. The telecom and Web
infrastructure build-up was too much, too soon.
The robust economic growth that investors assumed would go on forever is close to stalling despite
two interest rate cuts by the Federal Reserve (news - web sites) in January. The government's revised
estimate for U.S. growth in the fourth quarter of 1.1 percent, was the weakest in more than five years.
And the dot-com explosion, which stoked demand for more bandwidth and the equipment to build it,
has collapsed as firms that were supposed to change the way companies and individuals do business
failed to make money. Without demand for products to stoke sales and profit growth, investors have
little incentive to buy technology stocks.
``I'm not so sure the excess in technology capacity suggests these (stocks) have to bounce back,'' said
Berdine, who owns tech bellwethers like Cisco Systems Inc. (NasdaqNM:CSCO - news), Microsoft
Corp. (NasdaqNM:MSFT - news), JDS Uniphase (NasdaqNM:JDSU - news) and EMC Corp.
(NYSE:EMC - news)
Inventories Balloon
Several of the technology companies that led the bull market of recent years have reported troubling
gains in their inventories, investors said. That, on top of expected U.S. economic growth of just 2.3
percent for 2001 according to the mean estimate of economists polled by Reuters in January, is a sign
that a sustained rebound in tech stocks is not even close.
``We're not in a deep recession but this is the group that was thought to be the most invulnerable to an
economic hiccup,'' said Donald Coxe, chairman and chief strategist at Harris Investment Management
Inc., which oversees $16.5 billion in assets.
Cisco Systems, the No. 1 supplier of high speed router hardware for directing Internet traffic, saw its
inventory jump by 87 percent for the 12 months ended July 29, 2000, according
to Reuters data, while revenue rose just 56 percent.
Intel, the No. 1 chipmaker, reported inventories jumped 51 percent in the 12 months ended Dec. 30,
though revenue climbed a mere 15 percent. Motorola Inc (NYSE:MOT - news), the world's No. 2
mobile phone maker, reported inventories rose 53 percent in the year ended Dec. 31, compared with
a rise in revenue of 22 percent in the same period.
Investors also worry about the risk of obsolescence as technologies change and as the development of
new products outpaces demand.
``What's on the shelves on Motorola that has not been sold,'' said PNC's Berdine. ``What will it be
worth even if demand catches up with capacity.''
Investors now are questioning how the inventories of used equipment after the dot-com collapse will
impact the sales of technology companies. Bid4Assets Inc., an auction house, said in February used
dot-com equipment sales grew from zero to about a quarter of its business since October.
And while other companies, such as Wal-Mart Stores Inc. (NYSE:WMT - news) will increase their
Web exposure, their demand for Internet equipment will not match the demand of dot-coms, investors
said.
Some Optimism Left
There are some bright spots.
TeleGeography, a Washington, D.C.-based research firm, said the amount of fiber optic cable on the
ocean floor will have risen more than 40-fold in the three years ending 2002 -- enough for 250 million
simultaneous phone calls -- but even a small drop in price should increase usage
A 50 percent drop in the price of bandwidth has prompted some Internet Service Providers to buy
100 percent or more of additional capacity, TeleGeography said in a research note.
Things may not be as bad as they seem, said Jean Keller, president of Lombard Odier Inc., the U.S.
unit of the Lombard Odier group, which has $73 billion in assets, including Nortel Networks
(NYSE:NT - news).
The United States remains near full-employment, income growth is supporting consumer spending and
real estate is holding it's value, leaving U.S. household wealth mostly intact, he noted.
``Though we would not go all out,'' Keller said. ``We think it's time to buy tech.'' |
