NEWS AND COMMENTARY
January 3, 2001
At Least 210 Net Firms Failed in 2000
By Carl Corry, CBS.MarketWatch.com
Dot-Bombs' Fate Foreshadows 2001 ... Weiss comments
SAN FRANCISCO - The bleeding started slowly with companies like Toysmart.com and Violet.com shutting their doors. But as the year unfolded and funding dried up, 2000 became a dot-com bloodbath, with more than 200 Web companies closing.
According to a survey released Wednesday by San Francisco-based Webmergers.com, at least 210 Internet companies shuttered in 2000, with 60%, or 121, of the closings announced in the fourth quarter.
At least 40 Internet companies shut their doors in December, vs. 46 in November. December's shutdowns had received at least $1.5 billion in investment by venture capitalists and other private and public investors, according to the study.
About 75%, or 157, of the failed Internet companies addressed the consumer audience, while 21% focused on the business market. The remaining firms targeted both markets.
E-commerce players like Pets.com, Garden.com and Furniture.com accounted for 109 shutdowns, or just over half of the total. Content properties such as APBnews.com and NewsWatch.org made up another 30%. Net infrastructure and online services companies such as ISPs accounted for the remainder.
Between 12,000 and 15,000 employees lost their jobs as a result of the failures, according to the study.
Among high-tech hotbeds, Silicon Valley was hit hardest by the shakeout. Slightly more than 30% of the Internet firms' shutdowns took place in California, while New York and Massachusetts each accounted for nearly 10% of the total failures.
Just as Internet stocks were the first to fall, Internet companies were the first to close their virtual doors. As the effects of last year's tech wreck wears on, tech companies in a wide range of sectors will surely suffer the same fate.
The Nasdaq plummeted 39.3% last year - its worst year on record. And, though the dot-bombs were the first lemmings to jump off the cliff, there are plenty of other sectors taking the leap right now. Chip makers, PC manufacturers, fiber optics and data storage are all getting hammered. And the worst is yet to come -- every one of these sectors will experience the type of shakeout that is continuing to decimate the ranks of Internet stocks.
Other than dot-coms, the most glaringly vulnerable sector is wireless telecoms. The scramble to outbid competitors in order to capture market share on the third generation (3G) of mobile telephone licenses will result in many losers. The companies that win these contracts may end up bankrupting themselves in the process.
But all tech companies are facing a hard road ahead. Quality employees will no longer agree to forgo high salaries in exchange for stock options. And the looming credit crunch will cause many tech companies, which relied on easy credit to finance research and development, to collapse under the weight of their own debts.
Many investors saw their portfolios flattened as the New Economy fell on its face. These investors will think hard before putting good money in these tech stocks again, even at "bargain" prices. The next time the Nasdaq plunges -- and it will -- former Nasdaq darlings may find few buyers as stock values plummet. It will be a case of out of the frying pan and into the fire -- and one company after another will go up in smoke in 2001.
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