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Technology Stocks : EMC How high can it go? -- Ignore unavailable to you. Want to Upgrade?

To: AugustWest who wrote (11817)	1/10/2001 8:36:02 AM
From: jad	Respond to of 17183

The Storage Game: Storage Stocks Knocked Down, But Not Out Miami, FL, January 10 /SHfn/ -- The data storage industry is not immune to the economic downturn. That was the message sent by Robertson Stephens last week when the firm downgraded a long list of technology stocks, spanning networking, Internet infrastructure, software and yes, even storage companies. That's a bitter pill for investors to swallow, particularly for those owning the most exalted storage stocks, as identified by their lofty valuations. Those holding paper in EMC [EMC], Network Appliance [NTAP] and Veritas [VRTS] all took a hit on the brokerage's downgrades. The report shook the notion that this sector offers a safe haven amid a general economic slowdown that has already smacked down some of the Street's best-loved tech stocks. Roberstson analyst Dane Lewis also downgraded CacheFlow [CFLO], Quest Software [QSFT] and Inktomi [INKT]. Dan Morgan of Noble Financial forecasts IT spending will grow 11.3% this year. Lewis liberally salted an open wound, calling for a "significant slowdown" in corporate spending on information technology (IT), a broad term which includes spending on communications technology and Internet infrastructure build-out. He expects pricing pressure within the sector to affect the top line and margins of a number of technology firms. Dan Morgan of Noble Financial forecasts IT spending will grow 11.3% this year. Merrill Lynch analyst Steve Milunovich is stingier, calling for 5% growth in the U.S., 13% in Europe and only 9% on average, worldwide. Incredibly, the Street's biggest bulls are accepting a helping of crow-berry pie from the bears. Recall when Wall Street's "new math" for the "new economy" was in vogue? Then, analysts made headlines justifying P/Es in the hundreds. At the outer limits of common sense, such valuations were justifiable only if the companies were to exhibit the spectacular growth rates seen at the height of strong consumer and corporate spending. As Greenspan's emergency rate cuts signified last week, that just isn't the case anymore. The colossal rally for both the Dow and the NASDAQ following Wednesday's inter-meeting rate slashing suggested positive sentiment for the economy. After the elusive monster rally, though, U.S. markets slipped for three consecutive sessions, dogged by doubts that the rate cuts would spur a quick economic acceleration. Are things really worse than previously expected, or should investors be searching for the bottom? Yes, IT spending is slowing, they say. But there are glimmers of hope. Wall Street's top prognosticators are indeed taking a more cautious tone, yet they refuse to turn the market completely on its head. Yes, IT spending is slowing, they say. But there are glimmers of hope that the second half of 2001 will recover to better spending patterns. That translates into premium buying opportunities for the investor, say the sell-side analysts. In the meantime, as IT administrators tighten purse strings, they will be particular about how they allocate money. An executive poll by Merrill Lynch revealed that e-commerce and electronic data storage top the list of initiatives for 2001. A.G. Edwards analyst Shebly Serafi agrees that storage companies, including EMC, Emulex [EMLX], Veritas, Network Appliance and Brocade [BRCD], deserve premiums exceeding those of some Internet infrastructure stocks, even Cisco [CSCO] and Oracle [ORCL]. Those top-tier storage names provide components and software for high-speed, high-performance storage networks. Some analysts argue that leaner times could actually accelerate spending on the construction of storage networks, since they improve an enterprise's efficiency. IT managers may prefer spending to create scalable infrastructures, rather than keeping older network architectures that mandate additional storage devices or servers each time an enterprise's needs grow. Within this resilient sector, all storage is not created equal. Lewis' assertion that average selling prices will come under pressure foretells of a shakeout among the players. While it is generally for investors to be cautious of the most highly valued stocks within a given peer group, the increasingly competitive environment for IT dollars will bode well for the dominant storage companies. The leaders will pull away from the pack. Stocks like EMC, Veritas, Brocade and Network Appliance could provide a life raft for risk-tolerant investors who don't want to abandon the flailing tech ship altogether. However, the recent caution from analysts should signal observers to scrutinize year-end financial reports from these companies for any indication of shrinking top lines or profit margins.