Techs: Terrorism a risk to bottom line

Summary:More than 1,200 high-tech companies have included a mention of terrorism in their SEC filings since Sept. 11. And the list of 'risk factors' goes on.

Technology companies are listing a few more hazards in their regulatory filings, notably terrorist attacks and acts of war.

Following the Sept. 11 terrorist attacks, a host of companies issued profit warnings based on the World Trade Center and Pentagon tragedies--although analysts doubted that terrorism was solely to blame. And tech companies are increasingly listing in their regulatory filings that attacks and acts of war are risks to their businesses.

Securities and Exchange Commission filings are one way to gauge what companies are worried about. The "risk factors" are usually listed at the bottom of a filing and are often overlooked, but many of the warnings, such as those on price wars and increased competition, turn out to be prophetic.

In 1999, warnings about the risks of the Year 2000 bug were rampant in tech company filings. Earlier this year, companies in Silicon Valley warned that rolling blackouts posed a threat. Some companies, such as Oracle, still mention California's electricity problems as a potential quarter killer.

And now the big risk appears to be terrorism. Analysts expect terrorism and acts of war to be mentioned in filings as much as warnings about fierce competition and failure to innovate.

"It's the right step to include that as a risk," said a Compaq Computer representative. "The world has completely changed since Sept. 11."

Indeed, more than 1,200 companies have included a mention of the word "terrorist" in their filings since Sept. 11, according to 10KWizard.com, which provides SEC data. Electronic Data Systems was among the first to mention the attacks with a filing on Sept. 17.

"We've seen terrorism mentions pop up in a host of filings," said Martin X. Zacarias, CEO of 10KWizard.com. "It will be warned about until the issues subside."

Zacarias isn't kidding.

Compaq said in its recent quarterly filing with the Securities and Exchange Commission that the Sept. 11 attacks were "unprecedented events that have created many economic and political uncertainties, some of which may materially harm Compaq's business and revenue."

Compaq said attacks could hurt transportation, purchasing decisions and its supply chain of components and other parts.

"The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties," the company said.

The PC giant also listed a few other bugaboos that could hurt the quarter, such as its pending merger with Hewlett-Packard and fierce competition.

Amazon.com said its ability to handle inventory could be seriously harmed by terrorism. "Our ability to receive inbound inventory efficiently or ship completed orders to customers may be negatively impacted by inclement weather, fire, flood, power loss, earthquakes, acts of war or terrorism, or acts of God," the company said.

In previous filings, the war and terrorism mention was omitted.

Oracle, one of the first tech companies to cite Sept. 11 as a problem, said recent terrorist attacks on the United States "have added (or exacerbated) economic, political and other uncertainties, which could adversely affect the company's revenue growth."

Analysts said companies are likely to mention terrorism in SEC filings in an effort to cover themselves in case of a shareholder lawsuit. Better to be safe than sorry, but some analysts noted that companies usually have bigger worries, such as turning a profit and growing revenue.

"Among my list of worries for Amazon, acts of terrorism aren't that high," said ABN AMRO analyst Arthur Newman.

Nevertheless, Zacarias said he expects terrorism is going to be a frequent topic in SEC filings.

"There's a camaraderie among securities attorneys, and they make sure that their clients include all the risks that their competitors do," he said. "Lawyers literally cut and paste the risks into their boilerplate. You don't lose anything being exhaustive."

Topics: Hardware

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