Don't bet on Nasdaq rebound any time soon
By Nick Olivari
NEW YORK, March 7 (Reuters) - Forget one-day rallies in the
beaten-down Nasdaq stock market.
The tech-heavy Nasdaq Composite Index <.IXIC> 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 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. <CSCO.O>, Microsoft
Corp. <MSFT.O>, JDS Uniphase <JDSU.O> and EMC Corp. <EMC.N>
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 <MOT.N>, 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.
<WMT.N> 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 <NT.N>.
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."
((Nick Olivari, Wall Street Desk, 212-859-1658, with
reporting by Jamie Paton in New York))
REUTERS
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