Three years ago, they blamed the stock market's slide. Then came the dollar's strength, the first recession in a decade, and the costliest terrorist attacks in US history. Now, it's war.
Computer-related companies including Oracle Corp, Microchip Technology Inc, Applied Materials Inc and Gateway Inc. said last week that simmering worries about the war just started in Iraq caused customers to cut back or hold off on spending. Some investors say it's just the latest gloss on a slump that followed the computer-related buying binge of the late 1990s.
"We had the biggest bubble in the history of the world, period," said Bill Fleckenstein, president of Fleckenstein Capital Inc in Seattle, which makes bets on falling stock prices. "It's not about Iraq. The real reason is the bubble that we had."
Spending on business equipment including software and computers more than doubled in the 1990s, US government figures show, as enthusiasm about the Internet fueled investment and soaring share prices provided money-burning Web companies with an easy source of cash. Such spending declined for a year and a half starting in late 2000, languishing by the end of last year at an annual rate that's down US$100 billion from its peak.
"We don't think it has anything to do with the war," said Lee Edelman, a money manager at Argonaut Capital Management, which doesn't disclose how much it invests. "There's still a glut of capacity out there."
Even before the stock market lapsed into its first three-year decline since the end of the Great Depression, policy makers and economists were already drawing parallels to the 1920s, a decade when enthusiasm about radio and the automobile helped fuel a stock bubble. Not until 1954 did the Dow Jones Industrial Average finish the year higher than it did in 1928, the year before the stock market crashed, according to Bloomberg data.
Comparisons to the 19th century railroad industry are also apt, Edelman said.
"The railroads overbuilt, and the stocks suffered for quite some time," he said. "That's what we're seeing now."
The NASDAQ Composite Index of more than 3,500 companies, including some of the biggest software and computer makers, dropped 3.7 percent to 1,369.79 by 4pm New York time, erasing gains from the previous two trading days, amid concern that the war in Iraq may take longer than had been expected. The NASDAQ has fallen 73 percent from its peak on March 10, 2000.
Some computer-related companies say current events are playing a hand in weakening demand. As the US pitched the merit of a war to the UN, oil prices rose 18 percent in the first two months of the year, increasing costs of doing business and leaving consumers with less money to spend. Companies dropped 308,000 US jobs from their payrolls last month, the federal government said, helping to push consumer confidence to its lowest in more than a decade.
Hewlett-Packard Co Chief Executive Officer Carly Fiorina said late last month that the threat of war had made businesses more reluctant to spend. Gateway Inc Chief Financial Officer Roderick Sherwood cited the buildup to war in Iraq as a reason for the company's diminished sales outlook. Oracle said the war may help drive sales back down after their first gain in two years.
Skeptics say the information-technology industry, unlike others such as aviation, is more affected by the overhang from the 1990s boom than it is by geopolitics.
"I don't think we've seen any change in order patterns from our customers based on Iraq," said Michael Marks, CEO of Flextronics International Ltd, the world's largest maker of electronics for brand-name companies such as Motorola Inc. The war is "just an excuse. I don't see it," he said.
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