The fear of a slowdown in tech spending has done a great deal of damage to big tech stocks. Over the last three months Amazon (AMZN) is down 3%, Intel (INTC) is off almost 20%, Hewlett-Packard (HPQ) is down 12%, and Cisco (CSCO) is of 20%.
The real damage has been done to the tech companies which sit in the second tier. These firms have weaker balance sheets, smaller market share, and thinner margins. Wall St. obviously believes that they will have more than their share of earnings problems and those with weak balance sheet could be in deep trouble.
Shares in AMD (AMD) are off over 40% over the last 90 days. The company is still experiencing slow revenue growth and it balance sheet has $5 billion in debt. Its graphic chip business only broke even in the last quarter compared with Nvidia (NVDA) which posted a large profit. AMD is still at risk for having to raise more money.
Nortel (NT) crosses swords with Cisco in some markets. The Canadian company says it will aim toward providing 4G gear for the next generation of wireless deployments. The company has had virtually no revenue growth over the last four quarters and operates on thin margins. The company has $3.8 billion in long-term debt. No wonder the shares are down over 35% during the last quarter.
Sun Microsystems (JAVA) is up against IBM (IBM) and HP in the server market. Its shares are off over 25% during the last quarter. With almost no operating margin, and single digit growth, the company really does not have anywhere to go to find new business.
Douglas A. McIntyre
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