Tumbling market to calm IT nerves?

Falling values of high-tech stocks are likely to slow down the merry-go-round of mergers and staff turnover at many large organisations. In the UK, the value of the recently introduced Techmark market for high-tech firms has fallen by over a quarter in the last month, mirroring a wider trend in the US and Europe.

Until very recently, sky-high stock prices have meant that even very young companies have been able to trade on their paper worth by buying up smaller firms or even firms with more revenue but smaller valuations. That same factor has led to many startups seeking a flotation early in order to stay competitive with rivals. Lastminute.com for instance gained a listing this year despite being founded as recently as April 1998.

Another likely effect is that firms may see IT and other staff less likely to try their luck at dot-com firms and other high-tech organisations that have been priced high. Many dot-coms lure staff with the promise of stock options that are potentially worth large sums. If confidence in those options realising plummets, staff will be more likely to stay with bricks-and-mortar organisations who are better able to pay large salaries and offer ancillary benefits. For companies who have stated plans to go public the problem is even more acute as they will not even be able to guarantee their flotation if the current bear market conditions prevail.

Recruitment firms said that involvement with leading-edge technologies and having a say in business decisions also attract staff to new firms, as well as the potential to become rich. However, there are catches.

"The issues that tend to prevent people moving are perceived threat to job security because the startup companies are in a fast-moving and ever-changing market," said Steve Lorde, UK sales director of recruitment firm Elan Computing. "The bigger blue-chip companies may also be able to offer a wider range of employee benefits and since the devaluation of the dot-com companies, people are becoming more wary of leaving their blue-chip employers and their good salaries and benefits packages for the more risky stock options offered by Internet startups."

Lorde said companies should always consider how best to keep staff through options such as deals on financial services, help with child care, and through emphasising training and personal development.

The market downturn could also impact customer confidence in dot-com and other firms that have slumped such as Linux-related firms. Key Linux suppliers such as VA Linux, Andover.net and Caldera Systems are all trading below their flotation prices.

"It will cause people to add a touch of realism to their decisions whether it's an investment or employment decision, or even using some of these companies," said John Higgins, director general of UK IT trade body the CSSA. "There are always surges in excitement like Lastminute.com but these are incidental things. We have to look at the underlying trends and assess the risk/reward structure that is appropriate for us."

Vendors may also reassess some plans to subsidise startups. IBM currently gives its Netfinity PC servers to startups for six months and allows them to pay for the latest version of its DB2 database software with a percentage of their revenue. Hewlett-Packard, Sun and Oracle have similar schemes.

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