April 17, 2001, 4:13 PM — Panic now and avoid the rush. No, this isn't IT policy, but it sums up Wall Street. Just when investors believed stocks could go no lower, they found deeper ground to plow. Sure, some politicians and economists make the case that Wall Street isn't connected to Main Street, but they obviously don't work at publicly traded firms.
There are work-related reasons for IT professionals to watch the stock market.
First, they buy from vendors whose stocks are getting hammered. Top-notch technology is no guarantee of success. What counts are profits. If you're doing business with a firm that doesn't have any profits, ask why it doesn't. A couple of losing quarters in this market could spell disaster. Consider that PSINet, an Internet access provider, warned that it would likely face bankruptcy. If you think this isn't going to affect you, think again. The ripples from a tech meltdown will hurt everyone.
Winstar Communications, which has borrowed $600 million from Lucent, is on the ropes. Winstar can't pay its bills and is considering bankruptcy protection. This could further damage Lucent, which has denied rumors that it also would seek bankruptcy protection.
As a technology buyer, you must perform due diligence on the companies you deal with. Tell them it's not personal -- just good business.
A second type of due diligence applies directly to vendors' research and development. For much of the past five years, the bull market has given tech companies the opportunity to use their own stock to acquire new, emerging companies, supplementing their own R&D efforts.
Back in the good old days of 1999, Cisco Systems paid $6.9 billion in stock for Cerant Corp., a maker of fiber-optic networking equipment that had yet to book any significant sales. At the time, Cisco's stock was about $30 per share; today, it trades at less than $15, halving its buying power in the stock-swap market. So Cisco, which defined the strategy of high-tech takeovers to help move into new networking arenas, recently announced that it would curtail purchases.
Check your vendors' R&D efforts. Are they homegrown? Or did a high-flying stock price let it buy innovation?
Falling stock prices don't just thwart R&D takeover strategies; they also scuttle deals to extend a company's marketplace.
The once-vaunted business-to-business e-commerce arena is littered with shredded balance sheets, laughable revenue projections and scotched deals. In January, Ariba wanted to absorb Agile Software, creating a congealed mass of collaborative commerce products. Trouble is, B2B exchanges withered, and the bears attacked share prices like a swarm of locusts on a wheat field.
Ariba agreed to pay Agile shareholders stock worth $2.5 billion. But Ariba's shares have fallen so much that the deal -- now canceled -- would be worth just $500 million.
The warning is clear: Don't believe a company's future plans. Wait for the reality.
