What a Long, Strange Trip It's Been for Webvan

Baldwin Louie — Mon, 23 Jul 2001 15:00:00 -0700

ANALYSIS No one at Webvan's San Diego operations saw it coming. In mid-January, four months after acquiring rival HomeGrocer.com, Webvan was set to unite the two most powerful online grocers under one brand and one technology platform. It was a milestone, the first step toward the efficiency the companies had promised Wall Street at the time of the $1.2 billion merger. HomeGrocer's San Diego warehouse would switch over to Webvan's technology, and other facilities would follow.

But the integration didn't go smoothly; some customers were thwarted by technology snafus, others put off by an unfamiliar Web site. In the days after the conversion, San Diego patrons vanished; orders dropped from 700 a day to about 300.

A more cautious company might have paused, but not Webvan. One by one, it converted HomeGrocer sites in Los Angeles and Orange counties and Portland and Seattle to the Webvan platform. It was a risky move, especially since several facilities were close to breaking even; one was already profitable. Indeed, after each conversion, orders dropped 10 percent to 30 percent, according to several senior managers. In Fullerton, Calif., the one profitable operation, the decline was crippling. "That put us back into the red," says Rich Munday, who was senior director of operations at several of the Southern California facilities.

If the top execs at Webvan saw a problem, they didn't show it. On May 24, the day the operations of the two companies were finally integrated, they trumpeted the accomplishment in a press release. Webvan, they said, would be more efficient.

Maybe - but not for long. Last week the most audacious and second-best-financed attempt to rewrite the rules of retailing came to an abrupt end. On Monday, the gates of Webvan's Oakland, Calif., warehouse were shackled with thick chains. A security guard turned away workers and delivery trucks.

CEO Robert Swan blamed a considerable decline in orders and Webvan's inability to raise additional funds as the most immediate reasons for its demise. The drop in orders was due to a number of factors, the company says, including the economic downturn, cutbacks in marketing and bad press surrounding the company. Execs declined to elaborate further for this story.

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It's Friday the 13th, but so far a benign mix of economic news and company reports have done little to spook the markets.

Last night brought troubling words from chipmaker Advanced Micro Devices and encouraging signs from Juniper Networks, and this morning brought upbeat news from the Michigan Consumer Sentiment Index. But none of this is having the impact of Microsoft's positive revenue surprise. Microsoft's announcement, made late Wednesday, coupled with Yahoo's view that the ad climate isn't getting any worse, drove major stock indexes to triple-digit gains Thursday.

Stocks struggled early Friday but moved well into positive territory midday, still evidently cheered by Wednesday's and Thursday's news.

At noon EDT, the Nasdaq composite added 12.77, or 0.62 percent, to 2088.51 as moderate trading had the tech-heavy index fluctuating from red to black. The Dow Jones Industrial Average gained 27.68, or 0.26 percent, to 10506.67. The Standard & Poor's 500 gained 4.8, or 0.4 percent, to 1212.94. The Industry Standard 100 gained 3.24, or 0.85 percent, to 383.38.

After a weak opening, the preliminary consumer sentiment number for July helped move stocks higher. The index came in at 93.7, just above June's 92.6. The move higher, which beat expectations, was fueled by continued optimism, while the present situation index dropped yet again.

It appears that job losses and a spending crunch are starting to chill consumers as well. Retail sales in June gained 0.2 percent, below expectations. And excluding autos, sales fell just slightly from May.

Luckily for consumers, Friday's core producer price index –a gauge of the prices paid for wholesale goods, excluding food and autos – came in at a 0.1 percent increase for June, indicating that inflation is still in check.

In tech news, Juniper Networks gained 77 cents, or 2.7 percent, to $29.24. The router maker, Cisco's top competitor, met lowered expectations in reporting its second-quarter numbers. Robertson Stephens upgraded Juniper's stock this morning. Cisco Systems gained 43 cents, or 2.41 percent, to $18.29.

On the other side of the coin was Advanced Micro Devices, falling $1.89, or 8.33 percent, to $20.81. The company, which competes with Intel for the PC microprocessor market, reported second-quarter numbers in line with the company's warning issued last week. The report, which highlighted continued slowing demand for AMD's flash-memory products, prompted many analysts to pull down their numbers for AMD.

Intel fell 26 cents, or 0.86 percent, to $29.84. Transmeta dipped 14 cents, or 3.5 percent, to $3.85. Motorola lost 55 cents, or 3.03 percent, to $17.60. Texas Instruments gained 26 cents, or 0.78 percent, to $33.40. Equipment maker Applied Materials dipped slightly.

Things didn't look so good for Internet security player RSA Security. The stock had lost $4.10, or 13.69 percent, to $25.85. The company just missed lowered estimates and got hit by a raft of downgrades. Competitor VeriSign fell $1.67, or 2.97 percent, to $54.63.

DRAM chipmakers Rambus and German company Infineon Technologies find themselves in the news together again, after Rambus' patent infringement suit was thrown out at the beginning of the year. Rambus' stock has gone into a tailspin, losing $1.18, or 10.85 percent, to $9.70. The company's sales and earnings fell, and the company blamed the economic slowdown and legal bills for its woes. Separately, Infineon gained 68 cents, or 3.03 percent, to $23.12 after issuing 52 million American Depositary Shares.

News that New Mexico settled with Microsoft over legal issues has done little to move the company's shares. The stock lost 6 cents, to $71.54.

Other stocks of note include Ciena, down 2.6 percent and Level 3, down 5.8 percent. Siebel Systems gained 5.2 percent, and Applied Micro Circuits gained 2 percent after naming a new COO.

On the Big Board, Lucent gained 39 cents, or 5.7 percent, to $7.25; Nokia lost 3.5 percent; EMC and AT&T Wireless gained. AT&T and Global Crossing shed about 1 percent. AOL Time Warner slipped 1.3 percent to $49.40 on rumors that the company is set to take over Great Britain's IPC Media.

It's Friday the 13th, but so far a benign mix of economic news and company reports have done little to spook the markets.

Stocks struggled early Friday but moved well into positive territory midday, still evidently cheered by Wednesday's and Thursday's news.

News that New Mexico settled with Microsoft over legal issues has done little to move the company's shares. The stock lost 6 cents, to $71.54.

Other stocks of note include Ciena, down 2.6 percent and Level 3, down 5.8 percent. Siebel Systems gained 5.2 percent, and Applied Micro Circuits gained 2 percent after naming a new COO.

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What a Long, Strange Trip It's Been for Webvan