Industry Bellwethers Taking Hit As Smaller Companies Step Up

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Many tech companies are holding their own in a period of stock market uncertainty, but quite a few industry bellwethers have taken a market hit over the past three months.

IBM took the biggest plunge out of the 15 companies surveyed, falling 11.19 percent from June 1 to Aug. 27. Other losses were seen by Hewlett-Packard, Cisco, Microsoft, Oracle and Google stock over the same three-month period.

However, the majority of the major technology companies surveyed followed the market trend and saw stock-price gains over the past three months. VMware showed the largest percentage gain, jumping 21.65 percent, closely followed by Symantec with 16.26 percent. Other companies that gained over the same period included EMC,, Apple, Dell, Amazon, SAP and Xerox.


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Eric Martinuzzi, senior research analyst at Lake Street Capital Markets, said that the big-player losses are reflective of a larger problem that has been developing for a long time. As the market turns more toward Software-as-a-Service (SaaS), cloud and data storage, smaller companies are adapting more quickly to the changes and will continue to steal market share from larger companies that have traditionally held the market, Martinuzzi said.

"Macro trends have caught the big companies by surprise," Martinuzzi said. "People want to invest in growth stock, and if they don't see the growth potential, you become the equivalent of a bond or a dividend. You don't get the premium valuation anymore."

As more customers want to move toward outsourced IT and SaaS, the smaller tech companies have been better at adjusting to their needs, Martinuzzi said. The larger, mostly hardware-based, companies were having a more difficult time and were adapting to stagnant revenues by laying off employees. For example, in July Cisco announced it intended to lay off 4,000 employees in response to the rapidly changing market. Cisco shares plummeted nearly 10 percent in response to the news.

"They make the quarter, they make the earnings, but if they got in line for earnings and down for revenue that's not the outlook you want," Martinuzzi said. "The macro trend here is the big guys need to find what they're next line of growth is."

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