At least when this infamous week began, the folks in Silicon Valley who were seeing the
get hammered could point to some news:
took down the markets on Tuesday after a negative analyst report.
plummeted after issuing a disappointing profit warning.
By the end of the week, however, there was no news -- good or bad -- that would alter the course of the selloff. Take one example: Shares of software maker
, which had an extremely successful initial public offering in February, fell 50 points, or 35%, Thursday. There wasn't a bit of news about the company.
I phoned webMethods, which makes software that helps business-to-business exchanges connect with each other, to see if the company thought there was some explanation. In the best of times, companies won't comment on their stock movements, but they sometimes will talk about explanations they're hearing from others. Not this time. Caren DeWitt, vice president of marketing and a co-founder of the firm, refused even to speculate as to why others think the stock might be dropping.
Viewed through a rational lens (are those coming back into vogue?), it's hardly shocking to see webMethods dropping. The company had revenues of merely $12.6 million and no earnings for the nine months ended Dec. 31. Needless to say, the company hasn't gotten around to profits yet. Its market capitalization, however, topped $10 billion when its shares briefly hit 336 1/4 shortly after the IPO. By late Friday, when the shares were down another 25% to 68, the tiny company still was worth $2 billion.
What Goes Up For No Good Reason...
"This market was pure momentum on the way up, and now this is simply the momentum being unwound," says semiconductor analyst Daniel Myers of
. Myers says his group determined in the middle of March that a representative sample of semiconductor companies was trading on a price-to-sales basis at twice the valuation of the previous chip-industry peak in 1995. That, one might conclude, should be interpreted as a danger signal.
So, did Lehman get its clients out of chips?
"We said we have no fundamental explanation for the current valuations," says Myers, acknowledging that such observations are totally different from urging investors to sell.
Myers guesses that a continued stream of positive earnings reports -- which, mind you, had no impact on tech stocks Friday -- eventually will cause prices to stabilize. But he's not optimistic there'll be a quick recovery. Instead, he forecasts a negative summer, with tech stocks not rising again until the third quarter.
Other than the delayed impact of rising interest rates, however, few analysts have concrete explanations for why stocks have fallen now. After all, the 1987 stock market crash had real reverberations, the 1990 downturn was the result of the beginning of the Persian Gulf War, and the market plunge at the end of 1998, caused by the Asian economic crisis coupled with the demise of
Long Term Capital Management
If there's one group that's sitting somewhat pretty, it's venture capitalists and corporate venture units with piles of cash. Sure, their public portfolio companies are battered, but they now have something they have long lacked: leverage. That means they can now do deals on their terms, rather than having to accept the absurd valuations that pre-IPO companies have been able to command.
The head of business development for one well-established Internet company reports that start-ups seeking to be bought out have slashed their asking price by tens of millions of dollars. Similarly, entrepreneurs showing business plans to VCs undoubtedly will be humbler given that it's less likely they'll do an IPO any time soon.
Humility in Silicon Valley? What a concept.
Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at