THE WIRED INDEX
It takes two consecutive quarters of economic contraction to make a recession, but CEOs are already bracing for it. Should it come to pass, the pain won't be distributed evenly. Some WIRX companies will prosper amid the downturn.
The WIRX divides neatly into three groups. Foot soldiers such as Marriott, News Corp., Walt Disney, and Yahoo! use information technology to bolster their core businesses. They depend on arms merchants like Cisco, EMC, and Sun for hardware and software that bolsters their efficiency. Both factions rely on neutral parties like FedEx, Qwest, and WorldCom for critical networks and services.
The foot soldiers risk being stuck with excess inventory and capacity. In a weak economy, people protect their wallets. Sales especially of big-ticket consumer products plummet.
On the other hand, the arms merchants should be sitting pretty, particularly those whose products have short life cycles. It won't be long before customers of Cisco and Sun upgrade to higher-throughput systems, even if they rein in spending for now. Ditto for licensees of i2 and Oracle. Intel isn't so lucky; having the latest CPU on your desk isn't the life-or-death matter it once was.
For the neutral parties, a recession can be an opportunity to increase market share or gobble up weaker competitors. Of course, with stock prices sinking, it's better to be a gourmand than an entrée.
Whatever happens to individual WIRX constituents, the average recession lasts only 10 or 11 months. The glory days may be behind us, but kinder conditions may return before the end of 2001.
– Phil Hood (phood@digital4sight.com)
INDEX PERFORMANCE (as of 1/31/01)
Name Since 11/30/95 Previous 12 mos. YTD
| WIRX | +384.19 % | -5.74 % | +10.24 %
| Nasdaq Composite | +161.78 % | -29.63 % | +12.23 %
| Dow Jones Industrials | +114.55 % | -0.49 % | +0.92 %
The Wired Index tracks 40 public companies selected by editors of Wired to serve as a bellwether for the new economy. For a complete description and the latest results, see stocks.wired.com. Data courtesy Bloomberg Financial Markets.
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