Biggest victims? Tech firms that never made a cent; People dump stocks that rose on promise, not the bottom line; Future still called bright; Investing


Three weeks after soaring to an all-time high, the white-hot Nasdaq composite index yesterday slid 74.79 points, ending up a whisker above where it started the year.

Since reaching a high March 10, the index has plunged 899.73 points, or 17.8 percent. Yesterday, it recovered and closed at 4,148.89, after plummeting 634.34 points at midday.

Nasdaq's swift and stunning decline comes as investors flee the technology market, pumping their money into well-established blue-chip companies.

These investors are not just dumping the so-called dot-com companies; they are selling shares in biotechnology, wireless, e-commerce and Internet businesses. "They are all getting clobbered," said Dan Gillespie, senior portfolio manager in charge of the sector funds at Rydex Mutual Funds in Rockville.

But why? What has caused investors to suddenly turn on technology stocks?

Many analysts said there is a growing concern about the lack of earnings among the technology companies, so investors are moving their money to blue chips, or "bricks and mortar," companies that are easy to understand and historically have made money.

"There wasn't a fundamental change in the investment world in the past five or six months," said Neil Kilbane, portfolio manager for Victory Value Fund of Cleveland. "What changed was people's acceptance of it. And people's thirst for it. There was a growing awareness that perhaps there was a little too much enthusiasm in those [technology] stocks."

Hit especially hard have been smaller, less-established companies that typically haven't made money, but whose stock prices have been bid up to the stratosphere by investors who hope for a big payoff.

"Those stocks are the ones that were at the margin and were the most speculative," said Richard Cripps, chief market strategist at Legg Mason Inc., the Baltimore money manager and brokerage. "That is what the market is correcting, the excesses in these [high-tech] names. These stocks were bid up based on momentum, not fundamentals."

Cripps said there was a mad rush to get into technology stocks from Oct. 19 to March 10. The Nasdaq nearly doubled in that time, shooting up 88 percent from 2,688 to a high of 5,048 points.

He called it one of the most amazing increases of any index in history. "It has to do with the human emotion of greed and not wanting to miss out," Cripps said. "There was only one game in town for five months -- technology."

Many of those people are now bailing out, causing the rapid decline witnessed in the past three weeks.

Although there are hundreds of companies suffering, four illustrate what is happening to the Nasdaq and why investors have suddenly become skeptical about prospects. All are similar in that expectations have been high, yet none has made a profit:

Commerce One Inc. of Pleasanton, Calif., is a Web company that went public in July 1999 at $21 a share. Six months later, its stock vaulted to $331. Today, its shares are down 63 percent, trading at $121.

While sales have been strong, Commerce One still hasn't made money, and losses more than doubled last year to $63.3 million, up from $24.64 million in 1998.

But Ben Z. Rose, an analyst at Adams, Harkness & Hill Inc. in Boston, still expects the company to flourish as more businesses use the Web to buy goods and services.

"I think the key thing driving the success of [Commerce One] is selling the technology to help businesses leverage the Web to reduce costs," Rose said.

Incyte Pharmaceuticals Inc. of Palo Alto, Calif., is a biotechnology company that went public in November 1993 when it issued stock at $7.50 a share.

Its stock raced to a high of $289.0625 Feb. 25, as many other biotechnology stocks exploded. Since then, it has lost 72 percent of is value, and closed yesterday at $80.4375.

Incyte's revenues increased to $156.96 million last year, but the company lost $26 million, after making $3.47 million in 1998.

The slide is a result of guilt by association, said Alan Auerbach, an analyst at First Security Van Kasper in San Francisco.

"The market hasn't singled out this particular company. It has hit the entire industry of genomic companies very hard."

Auerbach still likes the company, but recently placed a "hold" on its stock, meaning do not acquire more of the shares.

Aether Systems Inc. of Owings Mills provides wireless data services. The company went public in October 1999, issuing shares at $16. The stock vaulted to a high of $345 March 10, but has fallen 62 percent, closing at $129.50 yesterday.

While sales rose sixfold last year to $6.33 million, the company still lost $30.69 million, compared with a loss of $4.69 million in 1998.

Despite its losses, Aether is a Wall Street darling. "There is clearly an opportunity in the investment community for companies like Aether that are really taking leadership positions in the new segments of the market," Riyad Said, an analyst at Friedman, Billings, Ramsey & Group Inc. said in an interview last month.

Many analysts expect Nasdaq's swings to continue, and they advise investors to develop a strong stomach.

"People have got to get used to this," Gillespie said. "Volatility is part of the game now."

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