Rising dollar is tech stocks' new Asian contagion

SAN FRANCISCO -- With the Nasdaq Composite Index dropping below the 5,000 level the same week of a string of weak forecasts from Internet companies, it's easy to see the stock market reverting to its March 2000 form.

Yet in one way, this tech earnings season has been more like the early part of 1998.

That's when a number of large tech companies reported results that were good but not as great as some tech bulls had hoped.

The disappointment, which drove tech stocks down for a spell early that year, was blamed by many companies on the so-called "Asian contagion" of late 1997.

That's when fast-growing economies in South Korea, Singapore, Taiwan and other countries in that region slowed dramatically.

Because the region was also fast-growing markets for chips, PCs and networking gear, the slowdown crimped growth at a range of the biggest-cap tech names -- including Hewlett-Packard, Intel and Cisco Systems.

This week saw the debut of a new financial albatross that weighed down the results of at least half-a-dozen firms.

Namely, the rising dollar, which has surged this year versus a basket of foreign currencies.

Last week, Google and Microsoft both reported this so-called currency headwind took a significant bite out of their top line.

The search giant sales would have risen 17%, or to $18 billion, instead of 12% to $17.3 billion, as reported.

That would make Google's foreign exchange hit roughly $780 million.

Microsoft said its sales would have risen 9%, rather than the 6% revenue growth it reported, or a difference of $510 million.

Unlike Microsoft and Google, which both included two sets of revenue growth numbers in their respective earnings releases -- one including the impact of currency fluctuations and another excluding it -- Apple made no mention of the strong dollar in its release.

Apple's Chief Financial Officer Luca Maestri did, however, in response to a question from an analyst on the company's conference call, say that the negative currency impact in the March quarter was "100 basis points (i.e., 1%) of gross margin," or about $238 million.

While the company didn't provide a figure as a portion of revenue, if its costs and expenses were impacted equally, its revenue reduction was 1% of $58 billion in sales, or $580 million.

That's a pretty stiff headwind.

Shares of Apple and Google have sunk since they reported results, while Microsoft's stock has gone higher.

The real tech-stock devastation came this week, when Twitter, Yelp and LinkedIn all saw their shares plunge on weak forecasts.

All three companies mentioned the stronger dollar as a contributing factor in their updated views.

As in early 1998, a factor outside the control of tech companies is exerting a noticeable impact on their businesses.

This time, though, the rising dollar may prove to be a more persistent problem, especially if the Federal Reserve raises U.S. interest rates as many economists expect.

With tech stock prices back at nosebleed levels, investors seem to be growing less forgiving of earnings disappointments -- whatever the reasons behind them.

John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.