Sept 29th: The Day of Unlucky Sevens

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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