Lucky you. Even Your armor is useless against a well aimed CHP billy club. -g-
DejaView(...or, Have I heard this tune before?)
Friday August 24 2:57 PM ET
Wave of High-Tech Failures
Could Become Deluge
By Andrea Orr
PALO ALTO, Calif. (Reuters) - The
dot-com storm isn't over. Even after
waves of dot-com failures have washed
ashore in recent months, many other
struggling companies are heading toward
the rocks.
For every company like the Internet
grocer Webvan Group Inc. (Nasdaq:WBVN -
news) that called it quits this summer,
there remain others such as software maker NetObjects
Inc.(Nasdaq:NETO - news), that are fast running out of
cash, and options.
NetObjects, which makes software for building Web sites
and was to have been a big hit in a wired world, last
week warned it had only enough money to last through
Sept. 30. The company is still searching for ways to
stay in business, but its 35 cent share price shows how
much faith investors have put in its prospects.
In fact, a recent count based on Reuters data turned up
some 482 U.S. companies, including 24/7 Media Inc.
(Nasdaq:TFSM - news), Critical Path Inc.(Nasdaq:CPTH -
news) and Netcentives Inc.(Nasdaq:NCNT - news), whose
stocks are below $1 a share. Many of them are technology
companies. Such a depressed stock price does not always
mean imminent death but often tends to signal a
predicament too deep to dig out of.
Think it was a rough summer in the technology industry?
Just wait until the fall.
``There are going to be a lot more companies failing,''
said Greg Roston, deputy director of the Institute for
Economic Policy Research at Stanford University. ``There
are a lot of money-losing companies that had said they
were fully funded for a year, and now that year is
coming to a close.''
PUTTING PROFIT ON A DISTANT HORIZON
While the bust that began in the dot-com sector more
than a year ago continues to strike consumer Internet
companies, it is also spreading to other areas of
technology from software to telecom.
The demise of these companies tends to follow a pretty
standard script. Their losses mount as they discover
they had mistakenly counted on a robust economy and
lavish consumer spending continuing forever.
Now that everyone has cut back, these businesses have to
put profitability on a more distant horizon, and they
have to find more cash to bridge the gap.
While some will find a way to make it through the
downturn, all forecasts are that the majority of them
cannot be saved.
Consider the financial condition of a few of the
businesses that have survived to date, but which now
trade at barely $1, or even lower:
-- ExciteAtHome Corp.(Nasdaq:ATHM - news), whose money
losing Internet content and access business has close to
$1 billion in debt, stunned investors last month when it
said it had already burned through most of the $185
million in emergency financing which was supposed to
carry it well beyond this year. With a stock at risk of
being delisted and no sign of its losses abating,
auditors say its future is in doubt.
-- Drugstore.com Inc.(Nasdaq:DSCM - news) won a quick
and decisive victory over now-defunct rival PlanetRx
(PLRX.OB), but it is still not expecting to turn a
profit until the year 2004. A problem, since it is due
to run out of money next year.
-- Ask Jeeves Inc.(Nasdaq:ASKJ - news) lost more than
$20 million from its Internet search business in the
latest quarter, and withdrew an earlier forecast to turn
a profit by the end of this year, with revenue below
expectations. One of the biggest gaining IPOs of 1998,
Ask Jeeves stock has crashed from an all-time high of
$169 to just over $1 a share this week.
-- Critical Path Inc.(CPTH.O), which makes software to
support corporate email systems, suffered declining
revenue and an $81 million net loss in its latest
quarter. The company is trying to stretch out its
limited cash by slashing jobs and consolidating offices.
-- Globalstar Telecommunications Ltd (Nasdaq:GSTRF -
news), the mobile satellite telephone company, is on the
brink of bankruptcy. After cutting half its staff this
month, it said it could make its cash last the rest of
the year, but probably not much longer.
SILENCE FROM WALL STREET
What does Wall Street have to say about these companies'
prospects?
Not much.
In an insult worse than harsh criticism, financial
analysts are simply ignoring the same stocks that were
on the top of many brokers' recommended lists.
Critical Path, which a year ago was trading at $79 a
share and had 17 analysts covering it, now is worth just
38 cents a share and is followed by just three analysts.
The group of analysts covering Globalstar has dwindled
from 10 a year ago to three today.
Conference calls to discuss financial results, which
used to be chummy back-slapping sessions between
management and Wall Street, have turned into somber and
quiet events where it is sometimes hard to tell if
anyone has dialed in.
The volumes of companies still struggling to survive is
especially striking considering how many have already
failed. So far this year, some 377 stocks have been
delisted from U.S. exchanges for failing to meet minimal
financial requirements, according to a count based on
data from the exchanges. That already tops the than the
337 that were delisted in all of 2000 -- also a
difficult year that marked the start of the dot-com
bust.
By another measure, corporate bankruptcies are on track
to beat last year's record level. So far, some 127
publicly traded companies have filed for Chapter 11
bankruptcy protection, vs. 176 for all of last year,
said George Putnam, publisher of The Turnaround Letter,
a newsletter that looks at investment opportunities in
distressed companies.
``Do we expect more bankruptcies? Yes,'' said George
Putnam, publisher of The Turnaround Letter, who figures
things will get somewhat worse before they get better.
``I'd say we are nearing the peak, but I don't know if
it will be this year or next.''
STEELY RESOLVE
What all these bleak numbers do not always capture is
the steely resolve of some companies to make things
work. Among those that are no ready to give up the
fight, is Exodus Communications Inc.(Nasdaq:EXDS - news)
the struggling provider of Web hosting facilities, which
is expected to be almost out of money by year end.
After drifting below $1 a share earlier in the summer,
the stock enjoyed a relatively strong burst as investors
speculated that a business with more than $300 million
in quarterly revenues and extensive physical assets that
are critical to the digital economy, was bound to find a
savior.
Perhaps. Then again, others believe that today's tough
economy is nothing compared to what will happen in the
fall, when consumers really start to feel squeezed by
the recession and curtail discretionary spending even
further.
David Tice, a portfolio manager who has for years been
forecasting a long and deep recession, sees a high-tech
industry that is swimming in excess capacity. In just
one dire sign he offers, Tice estimates that only about
390 million of the 650 million to 700 million cell phone
handsets on the market this year will sell.
``There's much worse to come,'' said Tice. ``It starts
to build on itself as more people get laid off, and it
goes into a downward spiral.'' |
