Tech stock trouble

Recent flotations like WorldOnline have not impressed

Technology shares have continued to fall sharply on stock markets around the world.

The Nasdaq, which is seen as the strongest and most dynamic of all technology share markets, has lost more than 11% since it opened for business on Monday, and 12.5% since it's 5,048 points peak on 10 March.

Germany's Neuer Markt has had an even tougher time.

Since hitting a high of 9,694 points at the end of February, the market has dropped 23.5% to 7,415.

Some analysts speak of a "correction". But others wonder whether the "TMT bubble" of telecom, media and technology stocks is about to burst for good.

Nerves fraying

Investment guru Mark Mobius of Templeton Funds has warned that the price of some internet stocks could drop by as much as 90%.

Arnold Berman, technology strategist at SoundView Technology Group, says: "Nerves remain very frayed after the volatility this month."

But despite the warnings, the end of the internet world is not necessarily nigh.

Some analysts have predicted the end of the "internet bubble" for years. Early this years some economists saw the beginnings of a tech bear market with long and sustained losses.

They have been wrong, as every slump proved to be nothing more than a buying opportunity for investors who snapped up stocks at discount prices.

But there are signs that investors have now begun to look at the fundamentals of new economy firms.

"Before Nasdaq pierced 5,000 for the first time, investors were compensated for taking on risk, valuation did not matter", says SoundView's Arnold Berman.

"After we started to have choppy days, there was a new bias to care about risk and liquidity", he explains.

The losers

Some web stocks look positively close to extinction. DrKoop.com, a health advise web site, has dropped from a peak of $45 last summer to just over $3.5.

Big web names are in trouble too. Two years ago, CDNow, the Amazon.com of music retailing, saw its shares trade at just over $35. They are now selling for $3.85.

New internet firms have also failed to live up to the hype. Recent stock market flotations of firms like WorldOnline, Lastminute.com and Lycos Europe have failed to impress.

Deutsche Telekom has been forced to lower its target price for the flotation of its internet business T-Online, down from 50 euros to about 35 euros if not less.

In the United States, the majority of technology flotations have fallen below their issue price.

The UK has seen its tech stocks get into trouble too.

Just days after FTSE International promoted nine technology stocks to the FTSE 100, the City's key share index, these shares went on a downward spiral.

Eight of the nine firms have dropped between 10 and 28 places since, and some of them could well drop out of the FTSE 100 again at the next revision in June.

The winners

But there are winners.

Italy's internet and telecoms newcomer e.Biscom defied the trend and saw its share price surge another 30% on its second day of trading.

The firm's market value is now more than 500 times of its projected sales in 2000. This takes e.Biscom to 13.7bn euros (£8.22bn) and makes it larger than Fiat (10.3bn euros) and Tiscali (11.9bn euros), which is another new internet company.

Another stalwart of the internet economy is doing nicely too.

Cisco Systems, which makes routers and other networking products that form the technical backbone of the internet, managed briefly to overtake Microsoft as the world's most valuable company.

Both companies keep jostling for the number one spot, and during Friday Microsoft was ahead by about $38bn, an advantage that can easily wiped out in a day's trading.