Tech stocks stuck in the doldrums

Technology stocks in the country continue to reflect the overall gloom-and-doom mood hanging over the IT industry both here and abroad. Investors are still wary given the high rate of dot-com failures in the recent past and the current poor demand from the United States for locally manufactured electronic components for IT products.

Industry analysts don’t see the local technology stock scene neither improving nor further deteriorating this year. But if it’s any consolation, investors are becoming less cautious about high-tech IPOs because they know the share prices have already discounted the worse-case scenario, says Jose Bistan Jr., research head at AB Capital Securities.

"The markets abroad are down so it’s not really time for the (local) tech stocks to rebound. But even with Nasdaq, for example, going down, our tech stocks here are already low that there’s no more room to go down," Bistan adds.

With the exception of the leaders in telecommunications, semiconductors and ICT services, most technology stocks in the Philippines have not successfully won investors’ confidence. One reason for this, analysts say, is the obvious lack of real products with competitive edge that will give these companies their stable source of income.

Dara Calderon, technology stocks analyst of KGI Securities, says other tech stocks are having a hard time either because they only have business plans or they are in a highly saturated business such as the delivery of Internet services.

"Dot-coms face a harder time because Internet penetration in the country has not improved much and they also have to compete with other more established firms with alternative platforms, especially those based abroad," Calderon says.

The current situation also proves that when the US sneezes, the Philippines will catch a cold. The technology stocks in the country, particularly the semiconductor firms, are waiting for the US market, the industry’s biggest buyer, to recover before they can follow suit.

"The technology market (performance) here depends on how technology companies abroad will do. Our tech companies are more of followers, with most of them exporting their products to the US," Bistan says.

Calderon believes that even if there is a recovery in the semiconductor industry, it will not be in the same way that the industry has been used to. "It’s hard especially for the semiconductor firms because they are coming from a time when orders (abroad) were really high, so to get to that place again, they have to wait for the US market to be back in shape," she says.

Philippine technology stocks that are in the pink of health are those of telecommunications companies led by the Philippine Long Distance Telephone Co. and the cellular business duopoly of Globe Telecom and Smart Communications. Holdings firm Ionics Circuits Inc., which is listed in the Singapore Stock Exchange, is also showing resilience, analysts say.

"Ionics should do well being the second biggest semiconductor company listed in Singapore. Their prices are bottoming out so they should do better this year, especially because they still have a contract with Philips Electronics to fill," notes Calderon.

Bistan agrees that technology companies with continued foreign contracts and multinational accounts are the technology stocks to buy, in addition to those of telecommunications firms.

Industry analysts are also optimistic about SPI Technologies Inc., which is engaged in highly specialized data conversion projects for publishing, medical and legal practices in the US and Europe. SPI is also the owner of a 300-seat call center called e-Telecare, which also caters to the offshore market.

But SPI chairman and CEO Ernest Cu says the market does not seem to reflect the optimism yet, which he believes is based on the fact that SPI is involved in recession-proof services.

"We have a very basic set of services and SPI is diversified in terms of the different markets that it is involved in. We are in businesses that are recession-proof. There’s no recession in medicine. There’s no recession in the legal and scholarly world. We are also in businesses that show continued growth like call centers. So it’s a nice balance that we have today," says Cu.

Meanwhile, analysts are advising companies that want to do an IPO this year to mothball their plans because they believe the technology slump might continue until after the next presidential elections in 2004.

"This is not a good year to have an IPO although the government is encouraging ICT investments. The slump will continue. It won’t be a good year maybe until 2005. If you are a tech company in the Philippines, you may want to do an IPO first in Singapore, which was what Ionics did," says Bistan.