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Tech woes see new lows

Stocks for Nokia, Dell, HP and Verizon fall below their annual sales value.

By Scott Moritz, writer
October 8, 2008: 3:13 PM ET

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NEW YORK (Fortune) -- This time it really is different. It's worse.

Thursday will mark the six-year anniversary of Nasdaq's most recent low, when the tech-laden index fell to 1,114 as the last squeak of air left the Internet bubble. Today, while the Nasdaq continues to lurch downward, at 1799 it still outshines the 2002 low.

But valuations for some tech giants haven't held up quite as well. The vigorous selling by tech investors has pushed shares of some very big, profitable companies down below the value of their annual sales, a low-point milestone that surpasses the depths of the previous crash.

Companies including Verizon (VZ, Fortune 500), Hewlett-Packard (HPQ, Fortune 500), Dell (DELL, Fortune 500) and Nokia (NOK) are trading at a revenue-to-price ratio below one. For example, Nokia's $16.71 price Wednesday is considerably less than the $19.19 revenue-per-share price based on the past year of sales. The company's total market value of $61.6 billion is below its yearly revenue level of $73.2 billion.

A number of companies throughout tech have fallen into this negative valuation zone, but these four stand out for their otherwise solid financial positions and leadership in their segments.

Their predicament shows that this massive revaluation, as some might call it, has not been all that discriminating. And in several cases it has been far more severe than the last bust. Nokia, for example, has $10 billion in cash and generates about $9.3 billion in operating cash flow a year. Today it has a price-to-revenue ratio of .8 compared with a 2.1 ratio six years ago.

"We are seeing values significantly lower than the last cycle, and the earnings are higher now," says Bay Bridge Capital's Scot Labin.

"I don't think it's anything specific to these companies," says Labin "I think it's hedge funds dumping shares and people going to the sidelines."

Tech stocks have taken it in the teeth, but so to have other industry giants. Media shops like CBS (CBS, Fortune 500) and Time Warner (TWX, Fortune 500), the parent of Fortune and CNNMoney.com, are trading below their yearly sales level.

To be sure, there are other measures of valuation, like price-to-earnings ratios, which gives a good profitability metric, but basic sales have fewer moving parts and give a glimpse on the pessimism among investors currently.

Reason will eventually return to the market, says Labin.

"Those companies, which stuck with financial discipline and made acquisitions that provided adequate returns on capital, will be significantly rewarded over the next few years," Labin predicts.

Meanwhile what is a tech investor to do?

"If someone could give me the worst case scenario, I'd be able to figure out a valuation," says one long-time Wall Street tech watcher. "The problem is that no one knows what the worst case is." To top of page

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