Plans by Alphyra and Riverdeep to delist from the technology index of the Irish Stock Exchange, ITEQ, could fatally undermine the project, which was launched in September 2000 with a market capitalisation of more than €3 billion.
Just eight "high-tech" companies have listed on the ITEQ in the past two years, far fewer than the 40 firms proposed by the Irish Stock Exchange when it launched the index in the dotcom bubble back in September 2000.
If both Alphyra and Riverdeep now get approval for proposed management buy-outs, the index may be worth less than €500 million.
This is causing critics to question the future of the ITEQ index.
"It is a victim of the technology bubble," says Mr Neil O'Leary, chief executive with corporate finance house Ion Equity. "It seemed the right thing for the exchange to do at the time and brokers encouraged and advised the exchange to set up the ITEQ... but it has no relevance today. I just don't see it having much opportunity to expand in this climate."
The ITEQ index was initially proposed as a tailor-made market for Irish technology companies at the stage of undertaking initial public offerings (IPOs).
As well as providing access to a European investor base and an increased profile domestically, the index was meant to provide a sectoral and geographical focus for Irish technology stocks.
But the low capitalisation of the ITEQ at just €800 million and the limited number of firms listed has undermined its goals, at least in the medium term.
Abandoned IPOs by the Irish technology firms, Norkom and Spectel - which were both considered candidates for the ITEQ - has done little to boost its reputation either.
According to Mr Barry Dixon, technology analyst with Davy Stockbrokers, it will be late 2003 at the earliest before technology floatations are likely.
Ms Deirdre Summers, director of listings at the Irish Stock Exchange, says the ITEQ still has a future and that the costs of running the index are not relevant.
"People are getting very excited about this at the moment but it is normal market conditions. Companies IPO when things are good and people go private when there is a downturn," she says.
"The ITEQ has also not suffered to the same extent as other technology indexes such as the Neuer Markt [which is being wound up] because the exchange was careful with the quality of the firms which were admitted. We had none of the very aggressive internet plays," says Ms Summers.
Dr Chris Horn, chairman of Iona Technologies - one of the firms listed on the ITEQ - remains positive for the future. The recent experience in the Republic is a factor of the global downturn in the sector and, as the global industry recovers, there will be a need for an accessible stock exchange for young Irish technology companies, he says.
One of the key reasons ITEQ was set up in the first place was to enable fast-growing technology firms to undertake transactions speedily without having to seek shareholder approval. It was also meant to improve liquidity for domestic technology firms that held dual listings on the Nasdaq and ITEQ.
Ms Summers is confident that the exchange's original target of 40 firms listed on the ITEQ can be achieved, albeit at a much slower pace than initially expected. The pipeline of young Irish technology companies is still there, she says.
But an ITEQ reduced to six firms, representing €500 million capitalisation against an overall value of the ISEQ of €56 billion, would not reflect the indigenous technology sector, and will inevitably raise the issue of relevancy.
