Tech Stocks Tumble - No consensus on cause

Compaq's recent dismal performance coupled with the resignation of the company's CEO Eckhard Pfeiffer are behind the worldwide drop in tech shares according to experts. But others are asking whether Internet stocks are worth the paper they are written on.

In London the FTSE 100 was down 160 points by mid-morning Tuesday with the US technology-based Nasdaq suffering its second biggest points fall ever on Monday. Companies across the technology spectrum were affected: in the US Microsoft, Intel and Dell all saw shares plummet while Internet giants AOL, Yahoo! and Amazon.com also suffered heavy losses. In the UK Dixons, Psion and Logica all saw their shares fall.

Philip Williams senior analyst with Dataquest blames the crash on investor nervousness characterising it as a blip brought on by Compaq's lacklustre performance in the first quarter, rather than the start of something more long term: "Compaq is the number one PC company," says Williams. "When it takes a dive, everyone gets nervous."

Williams warns against panic and points to industry bellwether Intel to lead the way. "People say the age of the PC is dead and it is true this year the market is not growing as fast as last year but companies like Intel have posted good QI results and the underlying market is still strong."

But Monday's meltdown has resurrected the row over Net stocks with analysts disagreeing on whether this is merely fall-out from the troubled PC market or a symptom of a more serious problem. The phenomenal growth of Internet companies like Yahoo! and Amazon.com over the last 18 months have led some analysts to predict a massive crash of Internet shares. Yankee group analyst Andy Greenman thinks "the first step towards a major wobble" has occurred and believes Net sceptics who have predicted a massive crash could be right. "All it will take is for the investors to lose faith in one company. If one topples, they all topple," he says.

According to Greenman the current drop indicates investors are beginning to wake up to the nebulous nature of Internet stock where companies continue to be overvalued.

IDC analyst James Eibisch disagrees and sees the crash as merely a market fluctuation, "Internet shares go up and down all the time," says Eibisch. "This is almost certainly not the bubble bursting. By definition some companies are vastly overvalued and they will fall by the wayside but if you take a long term view Internet companies have huge earning potential," he says.