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Summary:

Does anyone else find it weird that the rejection of the $700 billion bailout plan was a day of unlucky sevens? The Dow Jones Industrial Average declined 777.7 for the day. I wrote over the weekend a post that rounded up what some of the big […]

Does anyone else find it weird that the rejection of the $700 billion bailout plan was a day of unlucky sevens? The Dow Jones Industrial Average declined 777.7 for the day.

I wrote over the weekend a post that rounded up what some of the big technology companies had to say about the current credit crunch. Today, more information is emerging as to how the malaise is going to impact Silicon Valley. In particular I’ve been reading research reports from various Wall Street firms, and they are all turning increasingly bearish.

“[D]irectly or indirectly, the turmoil in the financial services industry affects most technology stocks,” write the guys at Lazard Capital Markets. “Credit for capital-intensive technology companies may be reduced or revenues may be lowered due to a reduction in financial services-related IT spending.”

On their short list of companies that they expect will be negatively impacted are Sandisk, Micron Technology and Spansion, because these companies turn to outside financing for their fabs and tools.

RBC Capital Markets’ Mark Sue, who covers communications hardware, in a note to his clients this morning wrote that, “Credit turbulence in the U.S., economic slowdown overseas, and an uncertain outlook for emerging markets mean it’s about trimming alpha expectations and moving to a relative defense posture when it comes to communications technology investing in, our view.”

Sure thinks that as the costs of corporate borrowing go up and access to capital becomes restricted, most of the companies that fall under his umbrella of coverage are going to be valued on the basis of cash flow and balance sheet metrics. He think Cisco and Juniper are OK, as is Ericsson. He is not so optimistic about Alcatel-Lucent and Nortel.

The worst off is Nortel, which has been free cash flow negative so far in 2008 (and in 7 out of the previous 10 quarters). There’s $3.1B in cash on the balance sheet but with $4.5B in debt, the company is in a very challenged position, which explains why it’s being forced to sell assets to raise money.

I will update the post as I gather more insights from folks around Wall Street.

Image courtesy of Bloomberg.

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  1. Coconut Wireless Monday, September 29, 2008

    On NPR last week, a guest on a show described the current situation as one where Wall St. is holding a gun to its head and telling the rest of us/govt., ‘If you don’t help me, I will shoot’

  2. This is just the begening!

  3. I thought 7 was a lucky number.

    What we see here is that Lawyers (house reps) don’t understand math. Or the reaction they will get in a highly interconnect complex system, also called chaotic systems (for a reason). Hold on to your seats, the roller coaster just started.

  4. And 777.7 was 7%! If we don’t pass the bill by market open tomorrow, the Dow will go down another 1,000 points…hold onto your panties…

  5. courtney benson Monday, September 29, 2008

    Sit tight! This too shall pass. Save your cash for when they throw the baby out with the bath.

  6. Hello Om,
    I can’t believe that you still trust/get advise from Wall Street Folks-
    “as I gather more insights from folks around Wall Street”

    What were you thinking when you wrote the above statement? Pl drink some more coffee, if you are feeling sleepy…

    Did you ask them about their fate first? It’s hilarious when they predict the future of tech, when they can’t even understand what’s going on in their own backyard!

    Every one knows that high tech will be impacted but this financial mess won’t mark the end-of-the-road for innovation & high tech.

    -Uday.

  7. Peggy McGilligan Monday, September 29, 2008

    For reasons too lengthy to go into, it’d really take the cake if I’m the 7th poster. Anyway, did you know many of the fat cats who circulate from board to board and from job to job throughout the financial industry, are also members of the Bilderberg Group and or the Trilateral Commission? When someone takes your money and steals your car, it makes an impression. When they belong to such secret political cliques, it leaves an indelible impression. Many elected officials even belong to these cabals. When Bill Clinton eased banking restrictions, he dished out $8-billion dollars for community reinvestment loans. When the financing schemes fell through, as is their wont whenever 30-million Mexican nationals buy inflated properties and default, it left banks in the lurch. Hillary Clinton counted on the loan giveaways to buy votes. Interestingly enough, had Hillary secured the nomination; she, instead of Barack Obama would preside over the bailout. So, where’s that $8-bilion plus dollars? The Global Initiative people (code speak for car thieves) took my money; they stole my car. If you or I did half the things these people have done, we’d be serving consecutive life sentences. Wise up, get angry, and let the bubble burst. Gentlemen, I want my money back: http://theseedsof9-11.com

  8. FEAR rules the day.

    cattle are motionless; sheep are catatonic.

    good time to start investing / building something new, i think :)

  9. How Wall Street Can Hurt Silicon Valley – GigaOM Tuesday, September 30, 2008

    [...] Kelleher, Tuesday, September 30, 2008 at 6:30 AM PT Comments (0) Monday’s 9.1 percent dive by the Nasdaq was so sharp — with big names like Amazon, Google, and Apple losing between 10 [...]

  10. All eyes are on the volatility of the Dow. If it’s Monday’s crash, or the aftermath recovery, the media can’t look past its instability. And that’s understandable given the popularity of the index, but misleading given the reach of the crisis and limits of the 107-year-old index. That’s why pulling the right strings depends on the choice of index during decision-making as I’ve discussed on http://peppercomblog.typepad.com.

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