You know it's grim out there when the television talking heads report that the stock market only finished down 369 on a day when it fell as low as 800 points.
(Credit:
CNET News)
With banks disappearing, liquidity drying up, and the political class clueless about events overtaking the economy, this is what a crisis looks like. If you want a good primer on the origins of what's now turning into a global credit crunch, check out the primer, courtesy of 60 Minutes, that I've embedded at the bottom of this post.
The $64,000 question (now $32,000 and falling) is the impact on the technology industry. So it is that just Monday, the following items came in on the transom:
• SAP issued a third-quarter warning.
• Netflix lowered its quarterly outlook.
• Another Wall Street house cut estimates on Yahoo.
• eBay announced plans to lay off 1,000 employees.
Heading into the teeth of earnings season, the news won't be much more encouraging. At best, it promises to be a rough patch. At worst, who knows? The VIX, a volatility index, climbed to levels Monday that now basically price in the coming of Armageddon. OK, we've seen better times. But before jumping off a ledge, some historical context is in order.
The pendulum swings both ways. Fact is that we've been here before, folks. Not in the exact same circumstances, of course, but in an atmosphere where the fashion of the day favored sackcloth and ashes.
Remember the October 1987 crash? In its aftermath, technology companies couldn't get the time of day from investors. Back then, I was a young reporter and was amazed that it didn't seem to matter that companies like Apple or IBM had beaten expectations. Their stocks would still get creamed. The herd simply was too frightened to think past the headlines du jour.
But Silicon Valley kept doing what it always does, inventing better hardware and software. Venture capitalists regained their nerves, entrepreneurs got funded, and innovation flourished.
More people have fresher memories of the Internet bubble burst. That was an especially ugly time as tech got nearly obliterated after 2000. For a while, it seemed the weekly additions to the Dead Pool of former high flyers would never end. But as bad as it got, that was only a brief chapter in the longer-running story of the computer industry. Normalcy returned and market valuations--for real companies, not the fakers--would later recover.
As the author of Ecclesiastes wrote a long time ago, there is nothing new under the sun. Cliche or not, take that advice to heart in the days and weeks ahead. It may come in handy.
Correction: The dollar figure in the headline has been changed to accurately reflect the story.
From a public relations perspective, this hasn't been an auspicious year for Brocade Communications.
In January, the company's former CEO got hit with a long jail sentence for criminal misconduct. Now it's going to cost a cool $160 million for Brocade Communications to settle a federal securities class action lawsuit tied to the company's stock option backdating practices.
In a press release issued Monday afternoon, the company said it had recorded a pretax expense of $160 million related to the settlement of the charges against the company and certain former executives and officers.
Stock option backdating is not necessarily illegal. Yet allegations of wrongdoing have involved dozens of companies in Silicon Valley in the last couple of years. With a stock option, the recipient has the right to purchase a share in a company's stock at a price called the strike price. The strike price is the value of the stock on a certain date.
Securities regulators and plaintiffs' lawyers say the practice was widespread in Silicon Valley after the dot-com bust. Some companies, they charged, improperly changed the strike price retroactively to dates when their stock was trading at a lower price. So it was that in 2006, the U.S. Securities and Exchange Commission charged Brocade's former Chief Executive Officer, Gregory Reyes, with backdating stock options for the purpose of hiring new employees and improperly expensing the option grants.
In January, Reyes was sentenced to 21 months in federal prison. A federal court also found that Brocade was financially liable for Reyes' conduct.
Brocade's statement said the settlement was in the best interest of its shareholders and the company "as it significantly reduces the uncertainty associated with this ongoing litigation."
The SEC also looked into the stock backdating practices of CNET Networks, publisher of CNET News.com. The company subsequently restated over $105 million in expenses and three top officials resigned, including CEO Shelby Bonnie. The government ended its investigation in September 2007 without recommending any enforcement action.
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