May 9, 2001

Tech Wreck Milestone

Cisco's failure to post a profit for the first time in its history shows us just how bad things have gotten. And, we still think things will get much worse.

Tech earnings, despite massive layoffs, have not shown any signs of recovery. Cisco's earnings woes came after they already had revised estimates downward and laid off 8,500 employees to boost the bottom line. And even Cisco admits that it doesn't see the light at the end of the tunnel. CEO John Chambers' most positive news is that the company sees a number of "positive indications that could result in a bottom in our segment of the industry being reached for capital spending in the next one to two quarters." Chambers can't say when the company will be able to climb out of the bottom, though. Earnings for Cisco and all tech stocks stink -- and they're going to get a whole lot worse.

Productivity is dropping like a rock. Productivity fell 0.1% last month, when most economists were expecting it to rise by a full percentage point. Plus, unemployment is soaring. A quarter million Americans lost their jobs in the first quarter of 2001. In response, they're slamming shut their wallets. That means our consumer-driven economy is in for more carnage. Tech companies, and any company for that matter, are going to find it difficult to bounce back once they hit bottom.

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