and CEO of Log On
America. (Tom Croke)
A glance at the share prices of Rhode Island’s technology companies shows local tech firms haven’t been immune to the ongoing downturn plaguing the country’s tech sector.
“Any company in tech has been feeling the pinch,” said Chad White, vice president of Providence investment firm Barrett & Co. “There has been a significant slowdown in IT spending, and really any spending related to upgrading systems.”
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Despite interest rate cuts, the tech-heavy NASDAQ composite continued its decline during the first quarter of this year. It sank to below 1620 in March — nearly 70 percent off its record high from a year earlier. Although the tech sector has rallied this month, the stock values of most tech companies remain mere fractions of their 52-week highs.
West Kingston-based American Power Conversion’s stock has lost 70 percent of its value since last summer, dropping from a high of nearly 49 to around 14. Despite posting record revenue in 2000, investors have repeatedly slammed APC — a maker of power-protection systems for computer and electronics applications — for posting weak earnings.
Other local technology companies have suffered similar declines. The share price of Providence-based eBT International Inc., a provider of Web-delivered applications, has dropped roughly 60 percent over the last year. Aerovox, maker of electrolytic capacitors, is down about 75 percent.
But some smaller, still-unprofitable tech companies have fared far worse. Providence-based local exchange carrier Log On America Inc. has seen its stock value drop from the high 20s two years ago to penny-stock levels. Its share price closed at 0.56 on April 23.
Log On America President and CEO David Paolo said the steep drop in value has not affected the company’s operations, although it has weighed on morale. “It creates a negative attitude toward the company when people see the share price erode so quickly,” Paolo said. “It’s been a drain on everybody.”
But Paolo said the loss of value does not translate into financial failure.
“The company still is performing very well with regard to our business model,” he said. “There is an ongoing shakeout, and a lot of companies are going out of business or being bought. We enjoy being one of the players that is still in business with a viable business model.
Log On America has little debt and $10 million in cash, Paolo said — enough to sustain operations at least through the first half of 2002. Still, the loss of stock value has hampered the company’s ability to grow through acquisitions.
“There are a lot of opportunities to buy other companies today, but the depressed stock price obviously makes that difficult,” Paolo said.
A few local tech companies with consistent revenue and earnings growth have held their own in the tech slide, although few have escaped the downturn altogether. Warwick-based Network Six, a 25-year-old provider of IT solutions to state governments, posted net income of nearly $654,000 last year after losing money in 1999. Still, its stock price lost roughly three-fourths of its value in 2000.
“There really was no news that would have caused our stock price to drop,” said Network Six President and CEO Kenneth Kirsch. “We’re financially healthy and the future looks good.”
Kirsch blamed the drop on a slowing economy, which has prompted companies and institutions to defer spending on IT-related services. He also pointed to tax-loss selling late last year, when many investors dumped unprofitable shares in exchange for a tax break.
Network Six’s share price has gained more than 80 percent this year, although it remains off roughly 35 percent from a year ago. Kirsch says the volatility in its share price hasn’t distracted the company.
“Of course last year raised some concerns. Nobody likes to see stock options that are underwater,” Kirsch said. “But we’re not in this for a quick dollar. Our objective always has been to increase value for our shareholders, customer and employees.”
Barrett & Co.’s White says the outlook for tech stocks should improve during the second half of this year, as companies trim inventories and the effects of multiple interest-rate cuts take hold. Still, he said, the market likely will remain choppy.
“I think the economy still is trying to chew through this technology inventory,” he said.
