Let the Bad Times Roll
By George Mannes
Senior Writer
4/2/01 7:35 PM ET
For tech investors, it's hard to imagine things getting worse. But don't worry: They will.
On Monday, the first working day after the March quarter closed, a startling number of tech companies began to tear their clothing, gnash their teeth and wail that first-quarter numbers wouldn't meet expectations.
The disharmonic convergence of sackcloth and ashes, presumably comprising companies that were praying for last-minute sales to save their bacon, doesn't bode well for technology investors who had hoped that all the bad news was in the system. Most likely there are other companies out there tallying up their first-quarter numbers and preparing to join the April foolishness.
What we have here, as they say in the trade, is a bad omen.
"Until there's a ray of hope that lets you look at the other side," says Ashok Ahuja, head of Icor Capital, "it's just a downward spiral of both revenues and stock prices."
Let's take a moment to examine the casualties.
Business-to-business software and services outfit Ariba (ARBA:Nasdaq - news), trading about 95% off its 52-week high, said it expects revenue for the March 31 quarter to be $90 million. That's, oh, about half of what analysts expected, according to Thomson Financial/First Call. Get that? One-half. The company is reporting an unexpected operating loss, too, by the way. And calling off a merger with Agile Software (AGIL:Nasdaq - news).
"As many others are also realizing, the slowdown in both the economy and technology spending has been much more dramatic than we had previously expected," noted Ariba CEO Keith Krach in a press release. "At the end of the quarter, we experienced a large unexpected drop-off in our sales closure."
Yup, those large drop-offs usually aren't expected.
Unfortunately, the people being laid off at Ariba have plenty of company, such as the 150 people being laid off from Redback Networks (RBAK:Nasdaq - news) in the wake of that company's preannouncement Monday night. On the bright side, Redback's new assessment of $85 million to $90 million in revenue for the March 31 fiscal quarter amounts to a shortfall of merely $45 million or so.
And the bad news keeps on coming. Internet infrastructure software developer Inktomi (INKT:Nasdaq - news) says its loss, excluding various charges, will be 23 cents to 25 cents for the March 31 quarter, not the 4 cent loss analysts expected. The company also expects to cut its workforce by 25% through a combination of attrition and "management action." Electronic customer relationship management firm E.piphany (EPNY:Nasdaq - news) says its expected loss, excluding charges, will be as much as 40 cents a share, compared to analysts' estimates of 9 cents. Broadband supplier Harmonic (HLIT:Nasdaq - news) isn't just reporting lower revenues and larger losses than expected for its first quarter; it's also restating the loss it reported preliminarily for the fourth quarter of 2000, from 30 cents down to 40 cents.
Desperate times, indeed. "There is no visibility at all," says Ahuja. "Most stocks are really at a point where you have to own them because of strategic value, not because of near-term earnings because that doesn't mean anything. You can't project what earnings are, so you can't project what P/Es are. You can't even project what sales are."
The only thing you can do, says Ahuja, is to try to put yourself in the shoes of a strategic buyer and try to figure out how that buyer would value a particular company. "That's about the only way," he says. "Otherwise, it's just stay away from all tech stocks."
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