Technology insiders nibble at shares

Although this activity can be described as "nibbling" in most cases--we have yet to see widespread consensus buying in this sector--it hints that sentiment is more bullish overall than in the recent past.

The technology sector has been especially hard-hit over the last nine months. A Dec. 14 earnings warning by Microsoft has heightened concerns that a sector rally may not be imminent. In fact, Wit SoundView analyst Arnie Berman called the announcement a "watershed event" because of Microsoft's past financial predictability. Microsoft's chief financial officer, John Connor, notes that weakened global economic conditions are slowing not just PC sales but also corporate spending for technological goods and services in general.

This makes purchasing activity at some of the largest technology companies particularly intriguing.

In the PC space, Apple Computer has experienced a 70 percent decrease in the price of its shares since the year began. A late-October purchase of 80,600 Apple shares by director Arthur Levinson was the first insider addition there in three years. With a market value of $1.6 million (he bought at prices between $18.81 and $20.34), Levinson's trade was also the largest addition by an Apple insider to date, and occurred when the stock was down significantly from its March high of $75. Apple shares subsequently slid to a 52-week low of $14 on Dec. 6.

In the domestic long-distance market, WorldCom is the nation's No. 2 player. Shares currently trade at about $17, down approximately 65 percent since the end of 1999. The stock actually hit a three-year low of $14.25 Dec. 5.

Director Francesco Galesi picked up 127,650 WorldCom shares between Nov. 3-17 at prices ranging from $15.88 to $18.13. This primarily direct transaction was the first insider purchase here since March 1999. Galesi has been successful in predicting an upswing in the value of WorldCom shares with his previous five additions--in the six months following those trades, the stock bounced back by an average 57.8 percent.

Motorola, the world's No. 2 mobile phone manufacturer, had two insiders buying a combined 7,250 shares in mid-October at prices between $20.38 and $22.50. Directors Judy Lewent and Ronnie Chan increased their holdings by 5,000 and 2,250 shares, respectively. These were the first executive purchases at Motorola in six months, and the first consensus buying here in more than two years. At the time of these trades, shares had declined 65 percent from an all-time high of $61.54 in March. The stock is currently down about 60 percent for the year, after rebounding from a two-year low at the $15-level set on Dec. 7.

Lam Research is a semiconductor equipment maker whose products are used by many major computer chipmakers. Its stock has shed 60 percent of its value this year. Director Grant Inman picked up 10,000 shares Oct. 18 at $16.68. Inman himself had made the most recent prior addition at the company two years earlier. Lam Research shares set a 52-week low at the $13-level when the most recent buying occurred, after trading as high as $56.81 in April. At its current price of about $14, the stock is down even further since this insider traded.

At Adaptec, a maker of computer-networking devices, its chief operating officer, Robert Schultz Jr., picked up 4,750 shares Oct. 30 at prices between $14.56 and $14.63. (Chief financial officer David Young subsequently picked up 600 shares in November at prices in the $13 to $15 range.) Adaptec executives had previously not increased their holdings on the open market in more than a year. In fact, Schultz himself made the most recent prior purchase in September 1999. His most recent transaction, worth $69,400, is the largest addition by an Adaptec executive in over two years. At their current price of about $9, a two-year low, Adaptec shares are down 80 percent year-to-date.

The recent buying may be a prelude to a recovery in the coming months as insiders often purchase shares when they believe the market is undervaluing their company's shares. However, with many tech stock prices down so significantly, I would like to see a greater number of executives stepping forward to increase their holdings at what appears to be potentially bargain prices.

Kevin Schwenger contributed to this article