Bright news behind bearish tech wreck mood

It has been a year since the Nasdaq crash of April 2000 and Australia's tech stocks remain incredibly bearish with some pundits claiming the market is oversold. But the good news for IT managers is that it's a buyers market and a good time to seek out solutions at bargain basement prices and negotiate favourable deals with vendors.

Ray Bradbery, Borland's Asia-Pacific vice president, said 12 months ago there were a lot of small tech companies with great ideas but unsound business cases receiving funding for product development.

Now, it has shifted dramatically with the focus on companies with sound revenue plans.

"This has created a buyer's market for niche products as boutique technology companies that couldn't survive on their own are being picked up by businesses with broader portfolios; we can buy solutions at a cost-effective rate not at the exorbitant price tags they had in their hey day," Bradbery said.

He did admit some IT projects in Australia were being scaled back in the current climate after a flurry of activity prior to the tech wreck.

In a rush to buy dotcom applications Bradbery said some IT managers "were throwing away everything they had done before to join the Internet revolution".

"It is better to leverage the technology already in place and slowly add functionality," he said.

After 30 years in the industry the cyclical nature of business is not new to Bradbery, but he warned companies often retract spending on the very technology that gives them a competitive edge.

He said spending in Australia dried up last December but believes it will return this quarter.

Buoyed by some positive first-quarter results in the past week, Bradbery said companies will start ramping up IT spending at the end of the year.

Local analyst Cyberstox has released data showing that only 54 of the 264 Australian tech stocks the company has been researching have returned positive earnings.

Local analyst Cyberstox has released data showing that of the 264 Australian tech stocks the company has been researching, only 54 have returned positive earnings.

Yet the fall in share values and market caps are right across the board, often without regard to earnings.

Analysts are concerned the bearish sentiment is being overdone thereby threatening the viability of Australia's entire tech sector.

According to Cyberstox, the share price of a profitable business like Powertel has dropped 82.7 per cent despite strong earnings, and companies like Third Rail or eCorp with negative earnings in the tens of millions, have the same percentage fall in their share price.

Put simply, the companies that are doing well are getting caught up in the dotcom wreckage.

Cyberstox warns: "We believe tech companies don't understand the need for investor relations and they don't talk to financial analysts. This might have been fine in a booming market, but not now."

The 'good old days' of the booming market in March 2000 was when the Nasdaq hit an all-time high of 5133. Since then it has slumped to around the 2000 mark with no clear bottom in sight.

According to Cyberstox CEO Tim Knapton, there is a greater degree of patience and sustenance to market reactions today as its being tempered with a balanced outlook for the future.

Knapton said that since December, expectations have been too bearish, higher first-quarter results may lead to some revised estimates especially in the hardware and semiconductor space.

"Our index has shown very little sign of recovery this month because we are a bit behind the US, but the market should see good results in the third quarter of this year," he said.

The IT companies monitored by Cyberstox are divided into three categories. Knapton said the first type are those that had a hurried migration from, say the mining sector, and acquired a domestic licence for overseas software. This category also includes dotcom startups and accounts for a third of the market.

He said the next category is emerging IPOs, generally IT companies about five years old.

"These companies have not reached critical mass in revenues yet and more than half of them will survive the aftermath," he said.

The third category, the convergent players, Knapton describes as the most important.

"These are large companies that have been dragged down with the other two categories and over-sold; but it is this category that will lead the recovery in the next 12 months," he said.

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