Monday, March 24, 2008

New England public tech companies are weathering the market storm

By Bridget Botelho

With U.S. stocks falling to their lowest levels since 2006 this month, companies like Cisco Systems Inc., Intel Corp. and even Google Inc. have hit 52-week lows. Locally, technology companies are doing their best to weather the storm.

The macro economic conditions in the United States -- where buyers and financial institutions are pulling back due to credit issues and foreclosures, the U.S. dollar is weak and energy costs are rising -- is hitting the local technology industry hard, said Boston-based America's Growth Capital senior research analyst Catharine Trebnick.

"There is a combination of problems going on here that is making technology companies vulnerable," Trebnick said. "We've got major companies like IBM announcing a $15 billion buyback of its stock (on Feb. 26). Instead of doing acquisitions as expected, they are investing in their own company. It is smart of them to do, but it also shows their concern in the market."

Locally, tech companies across the board are watching their stock values drop. Portland, Maine-based Fairchild Semiconductor International Inc., a global semiconductor technology supplier, watched its stock fall from $18.53 on Sept. 26, 2007 to $11.22 on March 13.

"Many semiconductor company stocks are hitting price points well below what Wall Street expected even months ago. Almost universally, people are saying 'I can't believe how low these stock prices are,' " said Daniel Janson, vice president of investor relations at Fairchild Semiconductor. "Investors are looking for some sort of catalyst to turn things around, and at the same time, trying to decipher what rock bottom actually is."

The company is taking some steps to cut costs: Fairchild subcontracts 60 percent of its production work to Asia, which costs a premium, and is looking at insourcing some of its manufacturing to reduce operating expenses. The company also took steps to reduce administrative expenses recently, Janson said.

"We do a fair amount of scenario planning, but ultimately there are things you can control and things you can't. In dire scenarios, there are steps we can take," Janson said. "We are already very cost-conscious, and always look for ways to cut costs."

Being a global company, Fairchild Semiconductor can leverage its geographic diversity to stay afloat when the U.S. economy is depressed, Janson explained.

"When you put all of your eggs in one geographic basket, you run a risk. We spread our exposure overseas to places like China, India and Brazil, where economies are still growing and investing," Janson said.

In addition, the company's inventory control management plan would prevent any serious surplus issues. Following the dot-com bubble bust, a number of companies were left with excess inventory they were forced to write off. The largest offender was network equipment maker Cisco Systems, which wrote off $2.25 billion in inventory that was slated for Internet companies defunct by 2001.

"There are ebbs and flows in demand, depending on things like economy or the season and holidays, so you have to make sure your distributor inventory does not get out of control," Janson said. "We keep our inventory within a range, and when demand picks up again we respond quickly."

Fairchild also hopes to regain market share through new products; the company is expanding its analog product line and is investing heavily in the wireless handset market, Janson said.

Waltham-based biotechnology company Repligen Corp. experienced a slight decline in stock value as well. On March 13, the company's stock value was $4.66 per share, up from $3.05 in March 2007 but lower than the company's December and January values of over $6 per share.

"We have always been cognizant that interest in biotechnology stock rises and falls with considerable volatility," said Repligen president and CEO Walter Herlihy. "We know the ability to finance the company through public offerings can be gone quickly -- that window can shut at any time. We have seen that happen a number of times over the past 20-some years, and it appears to be happening again."

Despite the decline, Repligen is positioned well. The company reported more than $4.6 million in revenue for the third quarter of fiscal 2008, which ended Dec. 31, 2007 -- up 20 percent from the third quarter of fiscal year 2007. This revenue will cushion the 26-year-old company and help it sustain growth this year, said Herlihy.

In fact, Repligen won't be doing anything differently during the current tough market conditions; it will continue to focus on products in its existing pipeline, which includes two products in clinical trials -- one in Phase 2 and another in Phase 3 -- and a product that will enter clinical trials in 2009, Herlihy said. The company is also hiring new people consistently, he said.

Just as there are plenty of companies that get financially wounded during slow economic times, there are segments of the technology industry that don't feel the pinch, because their products remain in demand, Trebnick said. The security technology giant McAfee Inc., for instance, closed at $35.02 on March 13; about the same as six months ago when it closed at $34.59 on Sept. 26.

"The security sector, for instance, won't be affected because you still need firewalls, you still need virus detection," Trebnick said. "Within this economic time, there are still opportunities, though they may not be as strong."

Bridget Botelho is a freelance writer in North Providence, R.I.