Stockwatch - War could further damage stocks
Stockwatch - War could further damage stocks
As the possibility of war grows ever more likely with each week, the mood on the stock exchanges of America becomes ever more jittery. With the majority of important technology companies listed in the US, Colin Powell's presentation to the United Nations and his subsequent demand for action has given tech stocks a ride full of uncomfortable flack.
Last week some commentators were confident that a war would be good for technology stocks, but a week later and the market seems to feel that a war would put a bullet into an already dying soldier.
"Everyone is focused on driving down costs so they can keep earnings up if revenues don't go anywhere. If we go to war, we'll see a real lockdown on IT spending and even more cost pressure," predicts Meta executive vice president Howard Rubin. "Everyone will be trying to protect earnings by controlling costs, since they don't know what will happen to revenues." Mr Rubin further added that IT spending is "waning" and Meta predicts that corporate IT spending will slip a further 10 per cent from the 11 per cent it dropped in 2002. He said that IT spending stagnated when the US went to war with Iraq in 1991.
New entrant to the storage sector Cisco has forecasted a decline in revenue for the current quarter and John Chambers, the CEO said that there would be the opportunity for an "upside" if war was averted. Cisco has still managed to beat revenue earnings and forecast for its second quarter, but has warned that the third quarter will be flat or possibly down by three per cent .
Backing up the claims of Meta Group and Cisco, the Dow Jones Industrial Average closed down 0.4 per cent following Mr Powell's announcement. The S&P500 dropped 0.5 per cent and the Nasdaq closed down 0.4 per cent.
Hewlett-Packard (HP) is due report its earnings in a couple of weeks time, but with the current atmosphere prevailing, analysts are already predicting that HP's reports and future will also be flat. Others are already discussing the health of the markets post war; "In our opinion, the other side of the war should help loosen demand. We believe the lingering threat of a war will keep new orders for both communications and computer and electronic products challenging in the near term. We believe that end demand is somewhat suffering the longer the uncertainty lingers," said Dan Niles an analyst with Lehman Brothers.
Having reported a victory in the battle, analysts were pouring cold water on the good performance reports that came out of Veritas last week. Veritas stock dropped 5 per cent after announcing the results, but did recovery on Wednesday, but was still trading down 24 cents a share yesterday. A round up of analysts found that they were happy with the fourth quarter results, but feel that the guidance for 2003 is too conservative to warrant any increase in stock price. It seems what ever you do it is wrong.
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