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Euro techs fall from grace
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January 6, 2000: 11:03 a.m. ET
Investors jettison computer, phone stocks after meteoric gains in 1999
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LONDON (CNNfn) - What a difference a millennium can make. Just four trading days into 2000, Europe's telecom and technology stocks have gone from market darlings to duds, a dramatic reversal of fortune from their record-breaking ways of December.
In an twist of high-tech irony, Europe's leading computer firms, telephone companies and semiconductor makers rode out the doomsday prophesies of millennium-bug meltdown only to collide head-on with a lower-tech threat: investor whimsy.
Investors on both sides of the Atlantic have switched their allegiance in recent days to economy-sensitive, or cyclical, stocks in sectors such as steel, chemicals and mining. So-called "defensive plays" - companies that produce food or beverages - have also benefited.
The exodus from the technology sector mirrors this week’s across-the board selling spree on the tech-laden U.S. Nasdaq, which plunged 5.5 percent Tuesday before easing an additional 0.6 percent Wednesday.
Jitters over interest rates in Europe and the United States have offered a further pretext for investors to reassess the sky-high valuations of technology stocks. And it's not just the little guy who's feeling anxious: on Thursday, the president of Sony Corp., Japan's leading consumer electronics maker, stunned the market by suggesting his company's stock price was over-inflated in the current market climate. The warning set off panic selling in Tokyo, where technology stocks led a 2 percent decline in the benchmark Nikkei average.
In Europe, telecom high-flyers dominated the decliners' chart Thursday. British Telecom (BT-A) was off about 7 percent, Deutsche Telekom (FDTE) shed 5.4 percent, Telecom Italia lost 4 percent and France Telecom (PFTE) - which climbed an eye-catching 90 percent last year - eased 3.4 percent.
To be sure, for the French and German firms, the decline was exacerbated by uncertainty over the future make-up of the Global One venture in which they both participate, along with U.S.-based Sprint, which is pulling out and selling its stake. Deutsche is reportedly considering a deal that would value the venture at around $20 billion.
But in other cases, tech stocks took a beating for little apparent reason other than the fact they happened to be in the wrong sector at the wrong time. Take semiconductor designer ARM Holdings (ARM), which surged 1,200 percent in 1999 as investors positioned themselves for increasing computer chip demand as a new generation of handheld wireless devices emerges. ARM skidded 6 percent Thursday, almost matched in the minus column by telephone network operator Energis, which gave up 5.2 percent.
Two of Europe's leading wireless-equipment companies have seen heavy bloodletting this week as well. In Helsinki, Nokia, the world’s No. 1 mobile-phone maker, has lost 12 percent of its value since the close of trade on Dec. 30, after gaining 28 percent in December and more than tripling in the whole of 1999. Nokia's Nordic arch-rival, Sweden's Ericsson, has suffered less severely, falling only 5.9 percent so far this year. The Swedish company had
gained 32.6 percent in December, and 181 percent in 1999.
Europe's bellwether technology-oriented index mirrored the misfortunes of individual stocks Thursday. Frankfurt's electronic Neuer Markt index, comprised largely of tech shares, was up marginally at 4,253.56 after plunging more than 8 percent Wednesday on the back of the Nasdaq's prior-day 5.5 percent slide.
Neuer Markt's British counterpart, London's TechMark index, slipped 1.4 percent to 3,454.48.
Despite the temptation for scare-mongering, analysts this week played down the long-term significance of the tech retreat. With the millennium bug receding as a palpable threat, some say tech companies will now have more resources to devote to development of new technologies and expansion.
Douglas Smith, a London-based tech analyst with Donaldson Lufkin and Jenrette, said "nothing fundamental" about the companies had changed.
"They had a very big run-up in the fourth quarter and second half of last year," Smith said. "No-one wanted to be out of these stocks in 1999, partly for performance reasons - for making portfolios look attractive."
Smith noted that even with the losses of recent days, most Internet stocks had only been pushed back to the levels they last saw about three weeks ago, before the year-end spurt. He suggested that the outperformance of some indexes - such as the U.S.-based Soxx semiconductor index, which shot up 239 percent in 1999 - increased the scope for declines now.
"This is a correction which only sets the market back three weeks - it is not a real fundamental change in the conditions of the market or company prospects," Smith said. He added he sees the potential for another 10 percent decline in the sector "before it bottoms out." 
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Neuer Markt
Techmark
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