Just one year ago this week telecoms, media and technology stocks were riding high. Technology shares had been rising strongly since the middle of 1999 as investors piled into anything carrying a dotcom label. The Nasdaq index in the US hit a high of 5132.52.
Warnings about "irrational exuberance" from the Federal Reserve chairman Alan Greenspan went unheeded. Valuations of companies that had never turned a profit and were unlikely to for at best a number of years soared. Ordinary people hoping to make their fortunes piled into shares that looked as if they could only go up and up.
It was not to last. In just a couple of hours on March 10th, 2000, the TMT bubble burst. Billion of dollars were wiped off the value of shares on markets worldwide starting on the TMT heavy-Nasdaq market in the US. That fall just a year ago started a bear market in TMT shares which despite some attempts at a rally is still going on.
The Nasdaq ended the year 51 per cent down on its March 2000 peak and it continued to fall in the early months of this year touching a low of 2071 last week. In London the new technology market, the TechMark 100, fell from its high of 5,743.3 on March 6th, 2000, to below the 2,300 level it started off at in November 1999. Last Monday, the TechMARK closed at 2,301.86, some 60 per cent off its high and only marginally above its starting level.
Big names like online retailer Lastminute.com and online directory Scoot.com have lost about 90 per cent of their value over the year. With the slide in TMT shares mobile phone group Vodafone lost its position as the UK's biggest company on the FTSE 100 to an "old economy" company BP Amoco, and Baltimore Technologies, Psion and Bookham Technology fell out of the FTSE 100 index.
In Germany, the Neuer technology market has fallen even more sharply than the Nasdaq.
The TMT share slide wiped out a slew of massively overpriced unprofitable dotcoms. But many well managed and profitable or potentially profitable technology companies, albeit overvalued by the market, suffered in a correction which did not discriminate between its victims.
Behind the sharp falls lie a collapse in investor sentiment towards industries such as telecoms, computing, software, Internet services and online retailing. Major technology companies in the US said economic slowdown will mean lower profits. In Europe, companies such as Nokia and Ericsson have warned of slowing revenue growth.
Irish technology companies quoted on Nasdaq have fallen sharply. One of the worst performers Trintech has fallen from a high of $75.44 on March 10th, 2000 ($150.875 before the two for one share split) to just $2.65 this week. On the Frankfurt Neuer Markt the shares have dropped from €2.70.
Baltimore Technologies has dropped from $44 to a low of $6.50 on Nasdaq and from £15 sterling to £2.30 on the FTSE. Riverdeep hit a high of $72.50 on March 9th, 2000, before dropping to $15.75 by August 2000. The shares are now trading around the $25/$26 level.
Smartforce reached a high of $60 on March 8th, 2000, but by January 10th, 2001, had fallen back to a low of $25.75. The shares are currently trading around $35 to $36.
Iona hit its high of $102 on March 9th, 2000, but by May 24th, 2000, had dropped to just $38. The shares are now trading around $43/$44. Parthus,launched on Nasdaq last June, has hit a high of $55 and a low of $14.75 over a 10month trading period. The shares are now trading at $19. In London, Parthus is currently trading at 128.8p sterling.
Datalex , which floated in October 2000 on the Nasdaq, hit a high of $12.50 and is now trading at its low of $8.50. On the Irish market the shares were floated at €7.25 on October 20th and are now at €4.70, close to their low of €4.50.
What investors want to know now is where the market is going and whether the current low prices present buying opportunities. Hopes that a rally on the Nasdaq on Tuesday was the start of a recovery were shortlived when the market started to slip back again.
On Tuesday night, US communications chip company Broadcom and optical player group JDS Uniphase issued profits warnings while Reuters reported Intel's chairman as saying he didn't expect the chip industry to recover quickly.
As a result, shares in ARM, Parthus, STMicro, Infineon and Philips all fell between 1.7 and 4.4 per cent on Wednesday morning while optical networking component makers Bookham Technology and Marconi fell 5 and 4.1 per cent respectively.
But false dawns are inevitable as markets feel for the bottom. Markets almost inevitably swing too far in both directions but calling the bottom is extremely difficult.
Analysts have mixed views about the outlook. Some say it will be well into the third quarter at least before any improvement can be expected and it could be longer against a background of an uncertain US economy. They think the Nasdaq has yet to hit a base level from which it can start to recover and warn that the first 10 per cent rise could be just a blip. Others are more confident of an earlier improvement and say that the bottom is close, if not already, at hand.
Some analysts say tech stocks look cheap at current levels but others consider them expensive by other historical standards, warning it would be unwise to buy before better evidence emerges that valuations have bottomed out and profit growth has been restored. But all analysts agree that the TMT sector is a complex marketplace and generalisations are fraught with danger. "Not all chips are the same and apples should not be compared to oranges," one analyst warned.
They agree that not all TMT shares will benefit from any recovery. Investors are expected to be much more cautions next time around and TMT companies who want investors money will need to be profitable or at the very least have an impressive and realistic "path to profits" plan. In an attempt to apply tighter measures of performance to TMT companies, analysts are switching to operating results or revenue per customer rather than growth in revenue or customer numbers alone.
But while the timing of the turnaround may be difficult to predict there is no doubt the sell-off has been overdone and must have left good buying opportunities.
Picking potential winners will not be easy. But careful research and assessment should be well rewarded.
