Tech Wrecks That Are (Were) Waiting to Happen

Author:
Publish date:

Another in our continuing series of tech wrecks that were waiting to happen:

Jabil Circuit

(JBIL)

late yesterday warned that it would barely hit analysts' estimates for its fiscal second quarter. It also warned that the next two quarters are likely to be weaker than analysts expected.

But the news really shouldn't have come as a surprise, especially if you look back at Jabil's trend over the past six quarters of beating analyst estimates. If you go back to the fiscal fourth quarter of 1996, Jabil's execs looked like geniuses, turning in numbers that were 75% better than the Street's estimates. From that point on, the company's ability to beat the Street diminished. In the following quarter it beat estimates by 22%, then by 25%, then 19.5%, then 5.38% and, finally, in the first quarter of 1998, by 2.08%. "If you beat the quarter by less and less, eventually the analysts catch up to you,'' says one hedge fund manager, who is short Jabil.

Moral (especially with high-tech highfliers): The higher Wall Street raises the bar, and the more a company clears it, the lower its odds of crossing it next time.

Meanwhile, investors who listen in on conference calls, such as Jabil's yesterday, often use the info on those calls for clues regarding other companies in their portfolios. Our Jabil short-seller was particularly impressed with the company's comment that its computer peripherals business was down 18% last quarter. Jabil didn't give names, but one of its biggest peripheral customers is

Quantum

(QNTM)

. Jabil makes its digital linear tape drive, which is a fast-growing, fat-margin product that currently represents about one-quarter of Quantum's revs.

If Jabil says its peripherals biz was down 18%, could Quantum be a tech wreck in waiting? There's been plenty of speculation that it will be. Furthermore, according to this Jabil short, who takes copious notes: At a recent

Goldman Sachs

analyst meeting, one top Quantum exec said the company's DLT biz would be up 5% to 10%. Then, at a

Robertson Stephens

conference two weeks later, the same exec said they would be plus-or-minus 5%.

For its part, Quantum says there was no inconsistency. According to a spokeswoman, "What we've said consistently was that we expect DLT revenues to be relatively flat or plus or minus, either way, in the single-digit percentages.''

Better buckle up.

Short Positions

Speaking of tech wrecks in waiting:

Why is it the analysts are sometimes the last to know? Yesterday

Cowen's

Chris Stix was pounding the table to buy

Bay

(BAY)

-- just like he did on

3Com

(COMS)

before it blew. Yet Bay is one of the imminent tech wrecks the hedge fund community has been yacking about for weeks. Heck it was even mentioned here as a tech-wreck-in-waiting last week. (Then again, I've never quite figured out why short-sellers often know what's really going on before the companies themselves!)

Iomega's (IOM) less-than-open door policy:

"By your own count you have written about Iomega 93 times,'' writes reader Kevin Linder. The times I have seen they were negative articles. Do you wonder why they don't want to talk to you?" No, I don't wonder. They were simply too arrogant. Success had gone to their heads. However, plenty of companies that have had highflying stocks, only to come under fire, could learn a thing or two from the public relations departments at

Boston Chicken

(BOST)

and

Einstein's/Noah Bagel

(ENBX)

. Both of those companies have had their share of troubles, and both have been the subject of more than their share of less-than-flattering items in this column. Yet they

always

called back with a response. Why? "Because we're a public company and it's our responsibility to respond whether it's to criticism or to accolades,'' says Karen Rugen, the Chicken's senior VP of corporate communications. "Plus, if we don't call back, the company hasn't had a chance to share information on what's really going on. A lot of times reporters don't have the full story. Why would you let critics speak for you when you have a good story to tell?''

(See Quantum's comments, above, as an example of the right thing to do.)

Speaking of dealing with the press -- yours truly gets mentioned (I dunno if this is good or bad) in a chapter about dealing with the press in

Gil Amelio's

new book,

On the Firing Line, My 500 Days at Apple

. Amelio wrote: "At the end of my first month -- one-third of the way into the 100-day measurement point of my success -- the image-shaping effort seemed to be in complete disarray, left to people who either had no time to respond or no experience in dealing with the press on strategic matters. A newspaper reporter facing a deadline in hours might not get a call returned for two or three days.

"San Francisco

Chronicle

columnist Herb Greenberg complained in print that the 'bunker mentality' of Apple PR hadn't changed, and pointed out that the company never issued a press release explaining my compensation package, leaving the press to jump to their own conclusions from documents filed with the government. Greenberg wanted to hear the company's explanation of the facts, so he called (former chief counsel) Ed Stead. But, the article said, 'His response? I don't know. I'm still waiting for him to return my call.' "

Ah, the bad old days.

Herb Greenberg writes daily for TheStreet.com. In keeping with the editorial policy of TSC, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnership. He welcomes your feedback at

herb@thestreet.com. Herb Greenberg also writes the monthly "Against the Grain" column for Fortune.