Weak Techs Fade As Economy Heads To Toilet (AMD)(JAVA)(EMC)(HPQ)(IBM)(VMW)

Joe Tucci, the CEO of EMC (EMC), has done his best to ruin his company and its spin-out VMWare (VMW). VMWare has the look and feel of a public firm but Tucci holds it captive and he recently pushed out its CEO. Since the beginning of the year, EMC is off 30% and VMW is down nearly 70%.

As the leading vendor of storage management, it is hard to see how EMC shares have fallen so far, unless Wall St. looks at its stewardship of VMW.

VMWare’s lead in virtualization software meant a great deal to investors after the company’s IPO. Its products promised to be among the most important corporate IT purchases over the next decade.The perception that the firm is not free to run its own operations and is entirely controlled by a much slower- growing company is the largest concern among shareholders. Tucci is killing his most valuable child.

As the economic pressure of a slowdown undermines investor confidence in almost all equities, the stocks of those companies which are most poorly run will fall at rates which are two or three times greater than their peers.

Sun Microsystems (JAVA) joins EMC in this category. JAVA shares trade near a 52-week low at $7.66 down from a period high of $25.04. The stewardship of Jonathan Schwartz has been remarkably poor. Unlike competitors including HP (HPQ) and IBM (IBM), he has been unable to field a viable set of hardware and software products. Revenue at the company runs flat and the most outstanding management effort is devoted to cutting jobs. The firm has no viable future and it is a wonder that the board has not sold it off.

The last large also-ran among tech companies is AMD (AMD). Hector Ruiz is finally out as CEO, but for reasons which will never be understood, the board has kept him on as chairman. He engineered the firm’s ludicrous buyout of graphics chip company ATI. The only realistic way for AMD to turn a corner is to move outsource its manufacturing to save capital. Most likely the work would be done in Taiwan. As odd as it may seem, AMD has not fixed any public timetable for this. It stands to be more urgent as the economy around the world turns down and IT spending is likely to fall off.

A recession often weeds out the most poorly run companies, and certainly sets their stocks back more than other shares in their industries. The chance of AMD, EMC, or JAVA making any recovery during the next year is close to nil.

Douglas A. McIntyre