By Tony Hallett, 9 July 2004 15:40
NEWS The writing on the wall looks ominous. A long list of tech stalwarts, including BMC, Business Objects, CA, PeopleSoft, StorageTek, Unisys, Veritas and Yahoo!, have seen their stocks fall - sometimes quite dramatically - in recent days and weeks, often on the back of warnings about quarterly figures.
Meanwhile the Nasdaq high-tech index once again fell yesterday (Thursday) after a dismal week.
One well-known UK analyst, Ovum's Richard Holway, is saying what many others dare not say: tech stocks are once again over-valued - and he called a market correction well before now.
Although the bad news seems to be gathering pace this week, Holway has been bearish on tech stocks for some time, countering the wave of optimistic sentiment from some camps that has accompanied the tech recovery of the past 12 months or so.
Today he told silicon.com: "There are a high number of people [in the industry] who are desperately hoping things are on the up but at the end of the day you have to face reality. You cannot justify sky-high valuations on the basis of single-digit growth."
In a research note as recently as 1 July he referred to a beginning-of-year prediction that Nasdaq will drop 20 per cent over 2004. He is not completely alone in such an assessment and cites reasons including:
- interest rate rises putting a dampener on consumer spending;
- higher interest rates hitting corporate capital expenditure, denting profits;
- IT departments not freeing up funds for technology as quickly as some have forecast;
- public sector IT spend reaching a peak;
- a weak dollar (which inflates many US-based vendors' earnings from overseas) not lasting forever;
- more fiscal prudence from the US after this year's Presidential election, meaning a tougher global economic climate.
The note ends with the instruction "Pray I'm wrong this time."
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Read our leader article here for more on this subject.
Comments
There are 4 comments. Join the discussion
1. Adrian Lee
To be honest, the main talk of the industry going up and up again has been from the media, jumping on the bandwagon and going on about the Dotcom crash and how things are turning round and making a big deal of it.
Thats caused undeserved hype and is the problem with the sensationalist media today. I'd tend to include silicon.com in that, though I don't think its as bad as many places.
All it took was a couple of IPO's like Google, and the press are suddenly shouting saying the high times are back, when its pretty unsubstantiated.
And anyway, despite Yahoo!s shar eprice dropping the other day, did their report figures not come out pretty well anyway?
2. David Hudson
Like many other VCs, I agree with Holway - though talk of a "crash" is overblown. The IT sector is simply finding an appropriate level. IT is going to be rated as any other relatively mature market - with occasional pockets of excitement.
3. Dharmesh Mistry
Unfortuntaley there is a lot of herd mentaility in the market. For example: http://newsletters.silicon.cneteu.net/t/25663/677295/9148/0/
SAP defies software slump.
Fact is a number of companies have posted good growth, and some reaching profitability. The important thing being for investors is to look at profitability and revenue growth (e.g. Staffware). Looking a profitability alone is not wise as generally this could be a one off improvment from cost cutting.
Yes I believe there will be a slump, but yes there are selective stocks that will be bargins yet again! And unfortunately there will be another round of stocks that will fail to recover despite their grand efforts at cost cutting, sales are key!
Finally I don't think we have seen the last of "wrong" accounting practices in software, AIT, Pace. I believe this is the biggest risk for software companies.
4. David Batup
I agree with Dharmesh that sales are the key. There has been an increase in some IT sectors as the project backlogs became un-blocked. But it will be the companies who can deliver solutions not just technology to real business issues that will not only win, but deserve to win. I still come across IT Vendors that are still too focused on the technology and not the business.