And so we begin the tech sector's journey into the Heart of Darkness
Can the nerds save the economy?
Comment Does anyone else remember when technology companies were propping up this economy?
Yeah, that's right. Oil prices were surging. Housing prices were plummeting. But there was the resilient technology sector, making us think things might be okay. No companies missing earnings. No layoffs. Hope at the end of the fab.
Um, well, I don't know how to put this, but the technology sector - as one of my Wall Street friends likes to put it - has blown up.
As this story goes to print, Sun Microsystems stands as a $6.9bn company, trading at $8.81 per share. Less than a year ago, Sun performed a 1-for-4 reverse stock split, kicking its shares from $5.14 to $20.56. It hoped that move would placate some institutional investors who demand a meatier share price and give the stock, long hovering between $4-$6, a psychological boost. Instead, Sun is nearing pre-split levels, and its reduced stock market value means that some funds dealing only in large market capitalization stocks will likely have to begin selling Sun.
AMD - the great David to Intel's Goliath - is valued at $2.78bn. Remember, this is the same company that bought ATI in 2006 for $5.4bn. So, David may still have a slingshot, but he's on his way to the pawn shop to see how much it's worth.
(Incidentally, if anyone out there can explain how Hector Ruiz has managed to remain CEO of that company, I'd love you to fly out here and negotiate some property deals for me.)
AMD's rival Nvidia is hurting too. Nvidia shares have dumped down to $11.36 from $40 last October. It's now a $6bn company, apparently making it worth twice as much as AMD, but who would want either one?
And what of the one-time darling VMware? It was up there at about $40bn in market capitalization only a few months ago, making the software giants who had come before it look like amateurs. At $38.98 per share (down from $125), it's now just a $15bn company.
EMC's CEO Joe Tucci decided to make sure you all knew exactly how bad this situation was by unexpectedly firing VMware's CEO Diane Greene and lowering VMware's full-year revenue expectations on the same day, using the precise language of "modestly" reduced earnings. Investors love it when CEO swaps come out of nowhere. It makes a company look very stable and like it had a succession plan or something. Oops.
Well, that's EMC in the tank too. At $12.73 per share, it's right around a 52-week low and valued at less than half what it was this time last year.
Google's looking pretty sickly. Its shares - $526 - are way off the year ago $747 highs. Worst of all, people are starting to try and understand Google's business. Just wait and see what happens when Google really misses a quarter, and everyone figures out that they have no idea how Google's money machine works. That'll go over well.
Cisco may have more money than God in the bank, but it's considered a lousy investment. It hit a new 52-week low this morning at $20.72 per share.
And what about HP? I mean, it just makes money and then makes more money under CEO Mark Hurd. Superstar. Fiscal wunderkind. A hero of printing and imaging.
Nah, it's near a 52-week low too at $42.06 per share.
If you're not depressed yet, then you will be after thinking about who buys the products made by these companies and what kind of financial health they're showing. Heaven help you if your company is at all dependent on the financial services sector where your clients are being propped up by the government or enjoying a good old-fashioned run on the bank.
Then there's that stalwart GM. It's almost dead.
That marvel of efficiency and technology know-how Federal Express is trading at $73.90 - waaaay off the $118 it flashed at this time last year.
Even the mighty Exxon Mobil with high oil prices leading to record profits is trading at $84 per share, down from $96.
And, dear lord, this is all with a weak dollar propping up US companies' financial results. That's left a company like IBM as a beacon of hope, but how long will even its good run last?
Unless just about every technology company going has an "iPod moment," then we're looking at a grim scenario where layoff reports will become rather common. That's especially painful news for people already being worked over by rising gas prices and overbearing mortgages.
We'll know just how bad things are for the technology sector, starting today when Intel reports second quarter financial figures. Intel's report will kick off three weeks of earnings releases - a journey that's starting to look like a dive into the heart of darkness. ®
value versus price
...or, what a complete fool you are Tom. This thread contains much that is learn'ed and true of the real world of macro-economics as we understand it today. Your comment is unfounded, inflammatory and crass, particularly comming just a few brief words before your own admission that you haven't even finished your studies yet (another borderline pass mark in the making there I think).
This economic crisis is more strongly linked to that same semi-educated arrogance, as expressed by you, being rolled out across the entire planet from parliaments down to schools ... as it is to any other factor. Evidence suggests in fact that this particular global crash-in-the-making, although heavily exacerbated by localised phukups, was caused directly by just one country performing just one indiscretion... to wit: the unscupled selling in the US of completely useless (sub-prime) morgages to desperate people who patently couldn't afford ever to meet the minimum payments and then the subsequent deliberate selling on of those duff investor debts to global banking and finance organisations. This kind of economic abuse is regularly being committed by people who either don't understand the way that economic factors interact... or simply don't care... and that you, in your rush to devour the requisite book list Tom, seem to have completely overlooked.
Value versus Price: In all things, value is only "that which you can persuade someone else to part with in order to obtain the proffered goods or service" in so far as you set a price as close to the perceived value (to maximise profit) and hope that someone bites otherwise your price has to drop. Housing as the current example - OMG - a £20,000 pile of bricks, tiles, wood(ish), plumbing, cables and wallpaper conveniently arranged to create a dwelling space therein... Where do the £150-450,000 price tags come from? That's "what the seller wants to realise" and up until recently it is what everyone had been conditioned to "expect to pay" but the market can no longer support this extortion. So now the perceived value is dropping (and will for some time continue to fall) because no one has sufficient faith in the security of the current economic situation, on one is prepared to cover the hugely inflated evaluation - 'asking price' and no one can afford the repayments on such ludicrous sums of money, even if they could secure the morgage. The same is as true of Stocks n Shares as it is for cars, computers and Personal Massages.
Heart of Darkness
We are all watching this one. This is a critical couple of weeks. Mood pretty grim in the Bay Area huh?
The folks at other companies that I know are not reporting hard times for revenue. The stock prices are dropping overall, but that does not necessarily correlate into layoffs until targets start getting missed. If revenue reporting stays strong or at least not miserably off target, then we might be looking at something new for the tech sector.
This is pure speculation on my part, but the way that smart companies these days are looking at IT is as the bread and milk of their daily business (e.g. watch P&G historical earnings and stock performance during economic downturns.) Better technology makes companies more competitive. Perhaps customers will be looking to save a Quid, Euro, Yen, Ruble, or a Buck here and there, but at this point saving too much or deferring a purchase may result in harming their competitive ability, efficiency, and productivity.
The devaluation in the stock price is looking very dollar linked. Companies with strong revenue outside the US are still reporting in Dollars and paying staff in [insert local currency here.] Revenue may seem high, but operating expenses are too.
Where tasty, flavour enhancing liquids are bought and sold?
Where cows, pigs and sheep etc. are bought and sold?
Where cut and shut cars are sold for banger racing?
Where distressed inventory is sold?
Where imprisonment devices for public merriment are sold?
A: none of the above.
Real A: Where smoke and mirrors are bought and sold.