Will they ever come back? Stocks such as JDS Uniphase ( JDSU), BroadVision ( BVSN ), Applied Micro Circuits ( AMCC), Ciena ( CIEN) and Network Appliance ( NTAP) were the most sparkling bubbles in the frothy market that came to an end in March 2000. Since then, many have been reduced to the status of penny stocks. And each rally has been but a momentary respite in that descent.
But it's hard to forget that these companies once seemed to be the leaders of entire market segments or the pioneers of whole new industries. Certainly not all of that was illusion, was it? Any investor who still owns shares in any of these companies surely hopes not. And many who made a profit from holding the shares -- and who therefore know the stories of these companies -- are just waiting for the slightest sign of a recovery before buying back in. Both these groups want to believe in a comeback for these bubble stocks. Of course, the potentially huge profit from such a turnaround doesn't do anything to discourage such hopes either. If BroadVision is headed back to $90, isn't loading up at $4 a no-brainer? DRAM computer memory market drove the price of a 128-megabit chip to less than $1 at the end of 2001 from $18 in 2000. What's needed to restore prices is to get supply and demand back in sync. But weaker companies -- such as Korea's Hynix ( HXSCF) -- have stubbornly hung in rather than exiting or selling to stronger players. (It's critical to the usefulness of this kind of analysis that you put a company in the correct industry for comparisons. Cisco ( CSCO), for example, does indeed sell to the deeply troubled telecommunications service provider industry. But the bulk of Cisco's sales go to what's called the enterprise market - businesses buying equipment for their own networks -- and that market is much healthier and much closer to showing improvement than the telecom sector. Cisco, I'd argue, is closer to a real turnaround than JDS Uniphase, for example.) Some former star performers face even tougher sledding. Not only do conditions in their industries remain difficult, but competitors have changed the technology balance in the sector. For example, Intersil ( ISIL) and Agere ( AGR.A) have, until recently, split the market for wireless local area network chips. But during the time since the bubble burst, companies such as Broadcom ( BRCM), RF Micro Devices ( RFMD) and Intel have all targeted the market. In some segments the pace of technology change has been nothing short of revolutionary. While companies such as Advanced Micro Devices ( AMD), Atmel ( ATML) and Intel have been waiting for demand to catch up to supply and improve prices for flash memory chips, a new, still-private start-up Matrix Semiconductor has raised capital to create a product that could shrink the size of a flash memory chip enough to reduce costs by 50% to 75%. The first flash memory chips using Matrix's technology could hit the market as early as the second half of 2002. And in the meantime, flash memory chip makers continue to struggle with overcapacity and sluggish demand.