Profit and growth outlook warnings from major technology, media and telecoms companies have caused sharp falls in TMT share prices. In volatile trading, shares on the technology-heavy Nasdaq market in the US have hit lows not seen since late May. But some analysts think the latest falls could be overdone.
Last night the Nasdaq Index closed 2.2 per cent down at 3,168.49.
This followed a 3.4 per cent or 115 points drop on Tuesday when it closed at 3,240.54. The Nasdaq Index is down 36 per cent on its early March level. At that time, just before the first large scale correction in TMT shares started, the index had exceeded the 5,000 level.
Trading in TMT shares has been volatile since March, although between May and August there were signs of recovery. Since the beginning of September, however, another wave of selling has hit the market. The Nasdaq is down 24 per cent since the start of September.
Profit warnings from the likes of Intel and Apple have led to fears that growth in the computer market is slowing. A raft of reductions by analysts in their ratings for computer chip companies seemed to confirm investor fears that sales growth was slowing.
Dealers said Intel's warning in late September of softer revenue growth led to fears that sales growth in the semiconductor market had peaked and investors were shunning the sector. Then, on Tuesday, the fourth quarter outlook warning from telecoms equipment maker Lucent weighed down telecoms shares. On London's FTSE market, shares in the telecoms equipment maker Marconi dropped 7.3 per cent while shares in the fibre optic firm Bookham fell 6.9 per cent. Shares in mobile phone giant Vodafone, which is in talks with Eircom about the Eircell takeover, fell back on market weakness and the news that it was selling telecoms group Infostrada to the Italian power firm Enel for €11 billion.
And the fall continued yesterday when shares in London and on Germany's Neuer Markt opened weakly in anticipation of further falls in New York where dealers said the market was suffering from "the seasonal Fall chills". The Nasdaq fell sharply at the opening but recovered in mid session.
A recent survey of US fund managers by Merrill Lynch found that pessimists about the corporate profits outlook now outnumber optimists by 23 percentage points. This compares with a 12 percentage point majority for the optimists in the August and September surveys.
It is the first time since March 1999 that most fund managers are pessimistic about profits. But why should this be? Profit warnings have not helped. Fund managers are worried about the impact of rising interests rates and higher oil prices on world economic growth. They suggest there is increasing evidence that US economic growth is slowing and are concerned about world growth and the consequent negative impact of slowing growth on corporate profits.
Another significant concern is the telecoms sector, largely because of the huge costs facing firms buying and developing third generation mobile operations. The costs of buying licences and building infrastructure will affect profits, cashflows and debt levels of companies which have been strong market performers.
These latest wobbles have affected Irish tech stocks in New York, Frankfurt and London. Last night in London Baltimore closed 48p down at £5.61 sterling while Parthus was 35p down at £2.32 1/2 sterling. In New York at midday Baltimore was 4.5 per cent down at $16. Trintech fared worst of the Irish stocks, falling 13 per cent to €17.40 on the Neuer Markt and closing close to its year low of €16.65. In the US the shares were down 13 per cent to $14 3/4 on Nasdaq by midday. SmartForce had dropped 6 per cent on Nasdaq to $44 by midday while Riverdeep was 3 per cent down to $20 1/4.
