COMMENTARY -- Break out the party hats, pass the noisemakers and toss the confetti, it's time to party...uh...hmmm...wait a second...that's it?
Wall Street blew out the indices in a massive afternoon celebration yesterday after the Federal Reserve hit the panic button and cut short-term interest rates at least a month earlier than expected. But that might be all for awhile, judging by Wall Street's flat performance today.
Alan Greenspan's nod to the market doesn't change any of the following:
- Daleen hammered on 4Q warning
- Resonate pummeled on profit warning
- Inktomi drops on warning, downgrades
- InSilicon to miss 1Q estimates
- Vitria cuts 4Q targets
- Aehr Test Systems tops 2Q estimates but sees slowing sales ahead
- Tumbleweed warns for 4Q, restructures
- DSL stocks rattled by Efficient, Turnstone warnings
Those headlines from the last two days tell you all need to know about the state of things, at least in tech and communications. Greenspan now feels the economy's pain, but keep in mind that it took months for the economy to start aching in the first place.
The Federal Open Market Committee raised rates in June, August, November and February, and it had all the effect of throwing a bucket of sand on a four-alarm fire. Wall Street and techs rolled along without a blip until this past spring, as the Fed boosted rates again in March and May of 2000. Signs of cutbacks in corporate IT spending still didn't start showing up until the late summer and early fall.
Likewise, cheaper borrowing costs won't ripple through for awhile. Even a half-point slice won't change things for a quarter or two.
And interest rate levels have little to do with many of the tech industry's problems.
PC sales aren't slumping because of higher financing costs, they're down because the U.S. market is maturing. Almost everyone who wants a PC already has one. What they don't have is a strong reason to upgrade.
Cell phone business has temporarily flattened and wireless appliances haven't taken off because of a dearth of reasons to buy them, and because, at least in the United States, wireless phone service still costs more than fixed wires.
Failed Web content companies and sliding e-consultants might blame capital markets for their problems, but many of them were questionable business models and badly run businesses that eventually would have run into trouble in any economic situation.
Companies such as AT&T (NYSE: T), Lucent Technologies (NYSE: LU), Microstrategy (Nasdaq: MSTR) and Apple Computer (Nasdaq: AAPL) suffered from problems of poor strategic decisions or sloppy corporate controls, not Greenspan's anti-inflation actions. And when an AT&T or Lucent screws up, many companies are affected.
Even good news comes with a note of caution. BMC Software (Nasdaq: BMCS) yesterday said it will beat estimates, but analysts remain wary because BMC remains heavily reliant on the IBM mainframe market, which is anything but a high growth segment, especially compared to other technology fields.
So a rate cut shouldn't change many things for tech stocks. Greenspan can't stop the spate of corporate warnings. Only the companies themselves can do that. 22GO>