TrendReport 2001

Stock Market Downturn

• Acknowledgement of a bear market
• 1,600+ mentions of "bear market" in major media during Q1
• Not just NASDAQ; DJIA and S&P both hit low points
• Many say bottom has not dropped out – yet
• Major question: "Is the worst over?"
• Sudden investor appreciation for "bottom line"
• IPO issuance slows to a crawl – consolidation instead
  • 2001: 78 deals withdrawn, only $7.8 billion raised YTD
  • 2000: 406 deals, raising $97 billion
• VC $$ dried up – smaller deals now of more interest
• Mutual funds records set: more closed or merged in 2000
• CNBC's ratings, favorability decline
• Scaling back at brokerages
  • Ad campaigns for Schwab, others, toning down message

CEOs Under Scrutiny

• Companies struggling to find good leadership
• Revolving door in CEO office
  • Boards, investors losing patience ("Blood in the Boardroom")
  • Former execs returning (Lucent, Maytag, Xerox, Campbell's)
• Greater Accountability
  • Lucent lesson
  • John Chambers' words come back to haunt him
• Question of whether execs can keep pace
• Wall Street Journal: CEO Turnover Slows as Boards Seem Tolerant in a Cool Economy
  • But not for CEOs of start-ups
• Eyes on executive compensation: New York Times, Wall Street Journal, Business Week, Forbes, Fortune
  • Opportunity for Leadership/Vision

Layoffs

• At least one major layoff announcement per week
  • Forbes 500 Body Count: 332,345 (as of April 20)
  • Industry Standard's Layoff Tracker: 77,220 (as of March 30)
  • Job reductions tripled level from 2000
• Hitting all sectors, including media
  • Editorial staff at New Economy pubs, Networks (ABC, CNN, NBC), websites (TheStreet.com, NYTimes.com) and newspapers (San Jose Mercury News)
  • Numerous stories about what laid-off tech workers are doing with their time
  • Impact on San Francisco and Seattle
• Pink-slip parties & the new workforce mentality
  • Employer: Focus on performance-based employees
  • Employee: B2B (back-to-bricks), B2C (back-to-consulting)
• Recruiting story changes 180 degrees

Earnings Announcements

• Meeting expectations doesn't do much to protect stock price
• Announcement by one company within sector moves everyone else – i.e. Palm's announcement and affect on Handspring & Dell's announcement on rest of market
• First six months of Reg FD:
  • Companies increasingly issued guidance
  • Companies now increasingly reluctant to provide guidance
• 700 pre-announcements in Q1, according to CNBC; 81% were for lower expectations, according to Business Week
  • Some issued guidance twice in Q1 (Cisco)
  • Communications sector projections: -88%
• Greater skepticism in accepting guidance
  • Business Week says: key word is "visibility" (or lack thereof)

The Fed & the Bush Administration

• Greenspan no longer omniscient
  • Business Week cover story: "Feeling the Heat" with photo of Fed chairman
  • TheStreet.com's James Cramer defends "Infallible Al"
• Rate cuts aren't calming Wall Street - yet
  • Even surprise cut lacks long-term impact
  • The Street has already factored in additional cuts
• Impact of Bush administration on economy
  • Tax plans, trade initiatives, China

No More "New Economy"

• Comeback of "brick-and-mortar"
• Trickle-down effect of "recession"
  • Goods and services, employee benefits (like in-house dry-cleaning) may be cut back
  • Vendors feel impact of business going south, long sales cycle
  • The decline of the "iants"
  • Down-rounds
• Reporters mock and chastise anyone who left good jobs for a dot-com, anyone who counted on options for retirement
• Financial/industry analysts as punching bag: blamed for hyping stocks and buying into "New Economy" concept
• At least 220 Net companies died in 2000 (bye-bye Pets.com)

Energy Crisis

• Impact on California's economy, psyche
• Potential for crisis to spread across the country
• Impact on other industries
• cost of "rolling blackouts" to manufacturing, business (Disney Land)
• increase oil prices
• Impact of Dept of Energy policies
• Arctic National Wildlife Refuge
• Anti-regulatory mindset

Pure Tech Trends

• More questions about wireless standards: is 3G necessary? (Europe fine with 2.5G)
• Also: will SMS (short messaging service) hit the U.S.?
• m-Commerce, especially in Europe
• Concerns about BlueTooth
• Napster loses in court; ramifications for P2P
• Online fraud, privacy and identity theft issues still in the news – especially for users of broadband (DSL/cable modem)
• Intellectual property arguments, copyright reform
• Healthcare on the Internet; digital records & privacy
• Dot-coms selling assets, including user lists (privacy concerns)
• Broadband glut vs. future needs

Bright Spots

• Neutral-to-positive Business Week cover stories on HP, AOL-Time Warner, Enron, Pearson, Gemstar (all revolving around dynamic CEO)
• Consumer confidence falling, but not as fast as some predicted
• Unemployment level still low: 4.5%
• Productivity levels drop, but still surpass all other economies
• Market: still volatile, but above 52-week lows
• MS XP may spur hardware purchases
• Shrinking inventories – chips, routers, etc.
• CIO Survey: Increase IT spending by 6.3% (up from 3.8 in May)

Media Overview

• Media still:
  • very interested in leadership
  • looking for a good story amid doom & gloom
  • very competitive
  • redefining websites, missions, staff
• Newspapers, Online sites:
  • cover significant news that impacts stock
• Magazines:
  • different news cycles = broader biz issues

Media Predictions

• More consolidation as some end up as roadkill
  • Brill's Content + Inside.com
  • Implication: changing landscape impacts strategy, focus
• Day of the 300+-page issue over
  • Business 2.0, Fast Company, Industry Standard, etc. no longer topple mailboxes
  • Ad buyers fleeing, saving pennies
• Some editions going away altogether
  • Forbes ASAP folded into Forbes: Best of the Web
  • Industry Standard European edition and Grok special editions gone
• Tech coverage in national dailies down sharply; number of pure tech stories down about 30-40%; focus of tech coverage is on earnings, pre-announces, etc.
• Not just numbers: New Economy pubs getting slammed by other media for hyping tech last year
• E-media feeling pinch, too – 27 went public last year, collectively stock down 80% from 52-week highs
• Fewer outlets increases competition
  • Implication: who gets "exclusives" will be key issue
  • Implication: fewer reporters to target (website and print staffs may merge) – may foster closer relationships
• Looking for TNBT: The Next Big Thing
  • Who weathered the storm; right leadership, business model
  • What does the Internet of the future look like? How can it be used effectively?
    

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