More steep falls are likely if Europe succumbs to the economic slowdown gripping America, where a downturn in business investment and consumer confidence has crushed corporate profits. Riddled With Overcapacity Information-technology hardware companies are particularly vulnerable. This industry is now riddled with overcapacity. In the misplaced belief their rapid growth would persist, these companies produced more than they could possibly sell. Neither will help company earnings.
Firms producing equipment for telecom carriers are especially hard hit.
First, their heavily indebted customers are scaling back their ambitions. All this adds up to pressure on earnings for companies such as Ericsson and Marconi. The stockpiling problem also passes down the supply chain. Chip makers, which supply the entire IT hardware industry, are drowning in inventory too. Share prices are unlikely to recover before investors are able to discount a meaningful improvement in inventories.