If statistics show that technology stocks fall in February, why do these analysts/writers report the "facts/news" in March, after the tech stocks have already fallen, rather than in January, when the facts/news might be more useful?
Sam was pointing out there's a regular January peak for techs before this reporter was. Does Sam have better access to the records than these reporters? <G>
Gottfried, you need to post a chart on the disk drive/tech sell-off cycle, so maybe we can remember better next year.
Remarks by General LK2
For Personal Use Only
fnews.yahoo.com
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THESTREET.COM - Mar 5 11:37am
Silicon Valley
Mar 05, 1999
Bad February for Tech? 'Twas Ever Thus
<By Eric Moskowitz
Senior Writer
Has everyone in techland forgotten that Februarys are almost
always forgettable?
After rising 87% since early October, the Nasdaq Composite Index has dropped almost 10% from
its high of 2533 on Feb. 1, leaving investors questioning whether the decline marks a bad case of
seasonal PC jitters or the beginning of a cyclical downturn.
While nattering nabobs scream about how the PC revolution is over, more seasoned analysts look at
February as the time when the techs take a deep breath after the Christmas season, preparing
themselves for the year to come. During this seven-year tech rally, the tech-heavy Nasdaq index has
fallen an average of 2% per year in February. In 1999, the drop was 10%, according to data-tracker
Baseline.
"Everyone gets the blahs in February," says Joel Gechter, a hardware analyst with money
management firm Northern Trust. "Too many conferences and the cold weather knock all us Wall
Street types out."
Now it's March, and, unfortunately, the bad news keeps coming, though a 28-point rally in the
Nasdaq makes everything look rosier this afternoon. 3Com's ( (Nasdaq:COMS - news) ) warning
Tuesday that it would not meet earnings expectations for its quarter ended Feb. 26 comes on the
heels of Dell's ( (Nasdaq:DELL - news) ) disappointing earnings report last month. Combine this
with Microsoft's ( (Nasdaq:MSFT - news) ) recent selloff -- because of the coming invasion of
alternative operating system Linux and its own mishaps in the Department of Justice trial -- and
there is a possibility that what happened to tech companies in mid-1998 may happen again.
Last year the culprit was an inventory glut in the PC industry. Compaq ( (NYSE:CPQ - news) ) was
the worst offender, building up a 10-week supply of products in its channel and forcing the PC
maker to unload inventory at a loss. Compaq is also involved in 1999's recent selloff, saying late last
month that it had weak sales in the first part of this year's quarter.
What worries tech investors most is that revenue growth rates may be slipping because of price
competition across the board. "I'm seeing a large topping formation in this market," says Morton
Cohen, president of the money management firm Clarion Partners. "But I see nothing really wrong
with the business cycles -- it's more of a global and seasonal nature."
This current paranoia was brought about after Dell -- the best-performing stock of the decade --
reported a 38% year-over-year revenue increase. While that's terrific for almost any other company,
the fact that the direct PC seller may not be able to maintain its 50%-plus revenue growth is making
analysts take a closer look at inferior companies' growth rates.
After all, if future revenue expectations come down throughout the sector, that could lead to a more
substantial downturn. That's why PC and PC-centric semiconductor stocks such as Intel (
(Nasdaq:INTC - news) ) and Applied Materials ( (Nasdaq:AMAT - news) ) also are getting hit.
Of course, Dell is not exactly finished as a blue-chipper, says Philip Treick, manager of the
Transamerica Aggressive Growth fund. "What are people so worried about?" asks Treick, who has
6% of his $200 million portfolio in Dell and hasn't changed his position recently. "I don't think Dell is
worried. They are still growing 3.5 times faster than the rest of their industry." In other words, if Dell
can maintain a consistent growth rate, even if it's only around 40%, Wall Street will be satisfied.
BancBoston Robertson Stephens PC and chip analyst Dan Niles, who saw last year's PC
inventory problem coming months in advance, says it's just a matter of adjusting expectations.
"Expectations have gone from unduly pessimistic [in June 1998] to unduly positive [in January 1999]
and are now headed back to the overly negative camp," he said in a recent report. Niles said
Monday that his firm is becoming more positive on tech stocks now that Wall Street has reset its
expectations to more realistic levels.
The tech sector would be free-falling if it weren't for those Rocky Balboa-like Internet stocks,
which get battered time and time again but keep getting up. After faltering in the first half of February,
TheStreet.com Internet Index has mostly bounced back to where it started, and is up 26% year
to date.
While the PC sector, the driver of much of this 15-year-old tech boom, has been dealt a few bad
hands lately, it still has a card up its sleeve: broadband communications, which would give individual
PC users the same speedy Internet access corporations currently enjoy. That's why forward-thinking
PC executives such as Dell CEO Michael Dell are already guiding analysts toward this emerging
trend.
While PC growth is stagnating, the top four PC companies still have opportunities for near-term
earnings growth thanks to the rollout of the fledgling Internet generation. "Industry pundits have been
saying the desktop market is saturated since 1994, when International Data said we would see
only 9% year-over-year growth from here on," says fund manager Treick. "They have just been so
far off for so long." In 1995, the worldwide PC market expanded 25.5% from 1994 levels,
according to International Data.
© 1999 TheStreet.com
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