|
Enron Contra
|
 |
January 25, 2002: 6:03 p.m. ET
Time was, everybody was looking for the next Microsoft. Now, they're hunting for the next spectacular blow-up.
By David Futrelle
|
NEW YORK (CNN/Money) - Back when the tech frenzy of the late 1990s was kicking into high gear, it wasn't uncommon to see tiny little tech companies being hyped as "the next Microsoft." Some who used the catchphrase were legitimate (though sometimes delusional) fans. Others were unscrupulous pump-and-dumpers hoping to lure greedy but inexperienced investors.
Indeed, at the height of the dot-com bubble, S.E.C. investigators were said to be conducting regular searches of Web sites and message boards for the phrase "next Microsoft" in hopes of flushing out some of the worst scamsters.
Now, with tech stocks in the gutter and worries about accounting stinking up the air, we're seeing a sort of mirror image process at work, with short sellers and other tech stock critics quick to label companies they don't like -- you guessed it -- "the next Enron."
A recent search of the stock message boards at Yahoo! Finance and The Motley Fool turns up literally hundreds of messages accusing various companies, including many tech names, of being Enrons-in-waiting. Tech companies I've seen mentioned range from fallen momentum favorites like Commerce One and JDS Uniphase to tech "blue chips" like Intel, IBM and AOL (parent company of this Web site).
Heck, even Microsoft finds itself under the microscope. (Which raises an interesting question: If Microsoft is the next Enron, what happens to companies that are the next Microsoft?)
Granted, some of these accusations are farfetched, little more than bad-faith badmouthing by self-interested short sellers without much evidence to back up their claims.
Here, for example, is one less-than-convincing anti-Microsoft argument I found recently on Yahoo! Finance's Microsoft message board. I quote verbatim: "Bill gates say good things and bla bla bla. This is what ENE did. He will sell his while he said the company is good. Hahahah."
I think we can pretty much dismiss that, er, analysis. Trouble is, we can't dismiss all of them quite so easily. There are a disturbing number of tech companies out there facing very real questions about their accounting, and while it may be unfair (not to mention alarmist) to tag these companies as the "next Enron", some tech companies are bending accounting rules almost to the breaking point.
To take one example...
There are a lot of companies guilty of tweaking their numbers to make them look better, and one company to take heat recently is Peoplesoft.
Here's what the software company was up to: In 1999, Peoplesoft spun off a one-person company called Momentum Business Applications to work on its Peoplesoft 8 software, booking most of the expenses as a one-time charge. Momentum then paid Peoplesoft to do the actual development work, essentially allowing Peoplesoft to record its R&D costs as revenue.
Technically, what Peoplesoft did was legal, and on Friday the company announced that it had agreed to purchase Momentum for $90 million, bringing the shell company back into the fold and bringing this little accounting trick to an end.
But this too-clever maneuver raises serious questions about the quality of Peoplesoft's earnings. You have to ask yourself: Do I really want to invest in a company that plays this fast and loose with its numbers?
Peoplesoft is hardly the only tech company with "accounting issues." Countless tech companies report "pro forma" results that exclude expenses that more conservative accountants would include and do a poor job explaining, much less justifying, the rationales behind the moves.
Market strategists ranging from Merrill Lynch's grouchy Richard Bernstein to Goldman Sachs' perennially bullish Abby Joseph Cohen are warning that the new skepticism about "pro forma" earnings and other accounting maneuvers may weigh stocks down in coming months. With tech valuations still looking pretty stretched after the big fourth-quarter runup, tech investors need to take even vague accusations of accounting improprieties very seriously. A company doesn't have to be the "next Enron" for investors to get hurt.
Email David Futrelle.
Sign up to receive the Tech Investor column by e-mail.
Plus, see more tech commentary from David Futrelle and Adam Lashinsky, and get the latest tech news. 
|
|
|
|
|
|
|
