Peaks Aren’t What They Used to Be for Investors in Silicon Valley
If it’s spring, it must be time for the annual technology conference of Hambrecht & Quist, the Silicon Valley investment firm whose name has long been synonymous with tech-stock underwriting.
For four days starting today, securities analysts and investors from around the country will be able to hear spiels from more than 300 companies. But although the crowd may be bustling and the setting grand (the St. Francis Hotel in San Francisco), the mood is different.
“It’s somber,” says Bruce Lupatkin, director of research for Hambrecht & Quist.
The Nasdaq composite average has dropped more than 5% since Dec. 31, and the only reason it’s doing even that well is that it’s been propped up by a few strong, large stocks, notably Microsoft and Intel.
In the small-capitalization sector that embodies the hopes and dreams of Silicon Valley entrepreneurs, many stocks are down 50% or more from their 1996 or 1995 peaks. That’s a particularly hard blow for the tech sector because so many executives, engineers and other workers in Silicon Valley have become accustomed to thinking of stock options as an essential part of their pay--and often regard a continuous trend upward in price as their birthright.
“In many ways it’s looking like a train wreck,” says Roger B. McNamee of Integral Capital Partners, a Menlo Park investment firm. “The impact is very broad because a sense of entitlement developed in Silicon Valley, with everybody locked and loaded on that mentality. At some level, that’s not the real world.”
The extended slump in tech stocks hasn’t quite manifested itself too overtly. Housing prices in Silicon Valley are still off the charts, and employment in the region continues to grow sharply.
But there are discernible effects in the world of finance. Initial public offerings, traditionally the key to cashing in on a hot start-up company, have slowed from last year’s record pace, and the deals are getting a much more nonchalant reception.
So far this year, according to CommScan, a New York research firm, 11 California high-tech companies have gone public, producing an average 4.6% gain in their first day of trading. At the same point a year ago there had been 17 California tech IPOs, which produced an average 39% one-day gain.
Industry watchers are in broad agreement over the causes of tech malaise.
“At the core,” says Lupatkin, “it’s a series of product transitions that have slowed corporate purchases.”
Integral’s McNamee and others believe most of these problems will sort themselves out by as early as the end of this year. If the stock market begins anticipating year-end growth a few months early, Lupatkin argues, a new tech rally may start as soon as this summer.
“The primary trends driving technology haven’t changed,” he says.
