Making Money in Technology
After the Bubble, page 7

What Caused the Bubble to Burst?, continued

Next, there was a huge wave of information technology (IT) spending brought on by the Y2K problem. Moving into 2001, this spigot was abruptly closed.

Many consulting and services shops based practices on the rising dot coms. Cutbacks in Web funding and expansion hurt firms like Scient and March First, forcing massive layoffs and even receiverships.

Perhaps most significantly, telecommunication carrier capital expenditure budgets (capex) were abruptly and starkly slashed.

The slowdown in IT, Web services, and telecommunications spending had a trickle-down effect that extended to almost all areas of technology.

In any case, once the bubble was burst, the downward momentum had a life of its own. As many “buy and hold” investors learned, it’s hard to hold onto your stocks when, each day, they are lower than the last. Momentum then operates in reverse.

The Telecommunications Capex Nuclear Winter

Of the three great spending chains that created the technology boom of the 1990s—personal devices such as the PC and cell phones; IT spending; telecom/Internet infrastructure—arguably the most important was telecommunications capital expenditure on voice, IP, broadband, and wireless infrastructure. This expenditure, which came to an abrupt halt in early to mid-2000, trickled down to all aspects of technology. Semiconductor suppliers were impacted, and therefore semiconductor equipment vendors. Router companies, Photonics companies, and many more, put their bread and butter on the table by selling to telecom companies-- or suppliers to the telecoms. In turn, software and services sold to this vast armada of interrelated companies also went into a tailspin.

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