It has been a glum year for the companies quoted on the US Nasdaq stockmarket and for those who have invested in them. Most of the major international technology companies trade on this index and the sharp fall in values so far this year reflect the bursting of the bubble which had seen any company connected with the Internet valued at extraordinary levels on the market. Nasdaq shares had another bumpy day yesterday; overall the index is now trading 60 per cent below the peak reached in March of last year. Many questioned the inflated level share prices reached early last year. But few foresaw the extent of the fall. The Nasdaq market has had a dreadful few months and this in turn has dragged down technology shares internationally. Irish companies have not escaped, with the share prices of many of the leading indigenous technology companies collapsing. And many of the big US technology multinationals which have significant operations here have also been amongst the biggest losers, contributing to the uncertainty about the outlook for economic growth here.
The latest upheaval in the market was sparked by a profit-warning late last week from Intel, the semiconductor company which is one of the Republic's largest employers. This was followed by an announcement of jobs cuts by Cisco Systems, the computer networking company, which added its view that the US slowdown was spreading and could last longer than anticipated. These were just the latest in a string of similar warnings from major US companies.
It is now clear that in late 1999 and early last year the financial markets very seriously overvalued technology companies, based on a mistaken view about the possibilities offered by the internet. Is the pessimism, in turn, being overdone? Certainly a shake-out of technology and internet companies was inevitable; many were never going to make any money. Even Yahoo! - one of the biggest names of the dot.com era - has suffered in the shake-out and investors are steering clear of any Internet-related investment. This will slow development in many areas.
The difficulties for the technology sector look set to last for some time. It is still not evident, for example, whether many Internet companies will make a decent profit, or even which technologies will drive the profitable operations. Digital technologies are going to be a major part of the future of business and a key to profitability for many firms. But such have been the losses experienced by investors over recent months that the crisis of confidence in the sector - which is affecting the outlook for the US economy - still has some way to run.