Tech stocks: 8 weeks of hell

Technology stocks fell nearly 14 percent from May to July, according to one stock index, and newly public companies were hit even harder.

Companies with initial public offerings in the last 24 months saw their values drop 32.4 percent in the eight-week period from May 24 to July 19, according to Broadview Associates, whose U.S.-based Information Technology Index consists of nearly 1,500 technology-related stocks. The firm's IPO index follows 440 companies.

Both indices fell far more than the broader Standard & Poor's 500 index, which declined 5.9 percent over the same period.

"We're seeing the kinds of drops that close the market window [for IPOs]," said Broadview's Charlie Federman, referring to the steep declines of firms that have recently gone public. A number of Internet companies, including EarthLink Networks and Wired Ventures, have delayed public bids after filing IPO registration papers with the Securities and Exchange Commission.

Federman blames the technology stock decline on rampant speculation and overenthusiasm about the Internet. The market value of the Broadview IT Index dropped 15.1 percent, or $300 billion in the eight-week May-July period, to a still-healthy $1.65 trillion aggregate.

For the broad IT index, Federman said the recent decline had been preceded by an increase in technology stock prices in the previous six weeks.

"The technology stocks gave up all their gains, and sometimes more," said Federman, who is chairman of the executive committee of Broadview, a mergers-and-acquisitions adviser to technology companies.

Within its technology index, Broadview segments tech firms into the following five categories.
--Supporting products and services: This segment, which includes firms like Merisel and MacWarehouse, fell 23 percent in the eight-week period but had run up almost that much between March and late May.
--Hardware: Hardware firms, such as Compaq and Cisco Systems, fell 18.1 percent as a group.
--Software products and services: This group, which includes companies like Oracle and EDS, declined 10.9 percent. Federman attributes the decline to the wave of Internet firms that have gone public and seen their stock prices fall.
--Media content services: A group including firms like Dow Jones, Dun & Bradstreet, and Time Warner lost just 8.7 percent, acting as a relatively safe place in turbulent times, he said.
--Telecommunications: The most stable of the groups includes AT&T, the Baby Bells and wireless carriers. This group experienced an 8.6 percent drop overall, less than others because of its stable base of operations.

Federman expects fewer IPOs among technology stocks in the future. "The marketplace will be far more selective in new issues coming out now. You'll see a paring back of issues, as well as the ripple effect in private placement market."

Likewise he expects merger and acquisition activity, which is Broadview's specialty, to slow for the rest of 1996. "We're going to see transaction volume be relatively stable, which is a bring-down of frenetic growth pace of past months. We expect dollar volume to decline."

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