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Tech firms face impact of financial crisis

Posted: 19 Sep 2008 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor industry? economic slowdown? crisis financial?

A strange thing happened to STMicroelectronics N.V. Sept. 15 when its stock price closed higher on the New York Exchange, rising a tiny 2 cents, or less than one-fifth of a percent to $12.23 per American Depositary Receipt.

The increase in ST's share price was negligible but in some odd way it was also extraordinary, giving the company a boasting right few other companies had for the day.

Out of 30 semiconductor companies tracked by EE Times, only ST managed to squeeze out a positive performance on the equity market.

All the other companies fell sharply, led by memory manufacturer Micron Inc., which tanked more than 15 percent and Cypress Semiconductor Inc., which posted an 11 percent decline. It was a bad day for most equity issuers.

The Dow Jones Industrial Average fell more than 500 points, or 4.4 percent, the Nasdaq Composite Index decreased 3.6 percent, and the S & P 500 Index tumbled almost 5 percent. The Philadelphia Semiconductor Index also fared poorly sinking 3.2 percent to close at 311.76, a new one-year low.

Few tech companies were spared. IBM Corp. sank more than 3 percent, Nvidia decreased 4 percent as rivals Advanced Micro Devices and Intel fell 10 and 9 percents, respectively.

Texas Instruments was one of the luckier companies, posting a drop of just one percent while Broadcom, Infineon, Intersil and National Semiconductor all sank approximately 4 percent each.

Global effect
A bloodbath occurred on Wall Street Sept. 15 and its effect is reverberating around the globe. For technology companies, the widening financial mess could result in greater difficulties securing financing for acquisitions and tighter lending conditions for basic corporate operational mechanisms such as line of credit.

Most high-tech companies were clobbered on a day all the arrows indicating equity performance pointed downward.

Even Hewlett-Packard Co. got hammered despite an announcement the company intends to lay off up to 24,600 workers over the next three years as it wraps up its acquisition of Electronic Data Systems Corp.

A similar announcement on another day would have given the company's stock price a bounce. Instead, HP's share price slid $1.64, down 3.5 percent.

Thinning high-tech shield
The problem started in the financial sector where Lehman Brothers filed bankruptcy after failing to secure a bailout from the U.S. Treasury Department, the Federal Reserve Bank or other big institutions like Bank of America and Barclays Bank but the negative effects are expected to impact virtually all economic sectors.

High-tech companies have so far been shielded from the more damaging effects of the economic malaise, which began in mid-2007 with problems in the real estate sector. The problem has since spread to the financial sector, construction and even retail markets.

The more specific impact on high-tech companies won't be known for some time although they are quite likely to suffer some, if not all, the negative effects flowing through the general economy.

One problem area for tech companies might be in their ability to secure funding for capital-intensive projects as well as acquisitions.

Economists said banks are increasingly reluctant to fund projects unless the payoff was abundantly clear and the risks easier to assess and control.

Industry observers at Moody's Inc. said "corporate and emerging market credit spreads ballooned" following Lehman's bankruptcy filing "highlighting investor risk aversion."

"The next six to 12 months will be extraordinarily difficult for markets and the global economy," said Mark Zandi, chief economist at in a commentary.

Zandi noted the unfolding financial crisis could play out in two ways. In the first scenario, bank failures and bankruptcies could worsen the "credit crunch and the recession," while the second possibility would result in the financial market emerging stronger following a round of tough cleaning up by regulators and investors.

"The financial crisis is much closer to its end than its beginning," Zandi said. "All of the stress points are now evident. This is a necessary condition for the turmoil to come to an end."

That may be the case for the financial sector. For companies in other economic segments, including the high-tech market, the aftermath of this financial hurricane might be worse than its beginning.

- Bolaji Ojo
EE Times

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