REVENUE WARNINGS IN THE US AND NASDAQ: As Bad as It Gets

This time last year Nasdaq was trading at over 5,000 levels. At the time of

writing it had already slid to below 2,000 and showed no signs of stopping. The

slide began with a few IT majors in the US, Intel among them, posting revenue

warnings and possible layoffs. What began as a trickle however, soon turned into

a deluge as company after company announced that the US slowdown had begun to

hurt and revenues were lower than expected.

Intel announced revenues would be down by 25% at 6.5 billion dollars in the

first quarter and said it was laying off 5,000 workers. It was the slowest

quarter for the company in four years. The market reacted quickly and Intel

shares that were once being traded at nearly $118 were down to $28. Oracle

announced revenue shortfall for the third quarter–its first in more than three

years causing its shares to plunge by over 13% in Japan. The "crown

jewel" of the technology sector, Cisco said sales and earnings would be hit

as it expected the US slowdown to last for more than six months. It also

announced it was laying off 8,000 people. Inevitably the Cisco scrip went down

from nearly $140 to a mere $19 a share. The company’s market capitalization

fell from close to 550 billion dollars to a little over 125 million dollars.

Though IBM hadn’t yet posted a revenue warning, it too declared that the

company’s earnings in 2001 would be affected due to the slowdown and more,

that the malaise could spread to the rest of the world. In his forward to the

company’s annual report, the Big B’s chairman and chief executive, Louis

Gerstner said, "The most disappointing note was that our year-to-year price

went down for the first time since I joined the company–to $85 from $108, a

decline of 21%."

The list is pretty much endless. Microsoft, Lucent, Nortel, Dell, Compaq,

Apple, Juniper, Ericsson, Nokia, Motorola…. the best of the blue chips were

being hit in the market. According to one estimate all the wealth (albeit paper

wealth) created at Nasdaq between December 1998 and its peak, has been wiped out

in the last 12 months. That’s about 3.6 trillion dollars. This does not

include of course the slides happening in other exchanges around the world

include the London Footsie.

For the moment, there are still some brave faces: people who believe that it

is essentially a market correction mechanism where over valued stocks are

finding their real levels. Sometimes however, reality can get just a little bit

scary.