February 4, 2008

1. Cerner, McKesson, athenahealth Agree: Today's Stock Market Sucks

Facts and Background

Shares in McKesson dropped 2% on Friday after the company fell short of earnings expectations. Cerner shares gave up over 10% Friday and reached a yearly low after the company failed to meet Wall Street's revenue estimates and forecast weaker Q1 sales. athenahealth withdrew its planned secondary public offering on Friday due to market conditions.

Opinion

This isn't just recession fears talking. Both Cerner and McKesson didn't make their numbers: Cerner on revenue and McKesson on earnings.

Musings

• Investors value only earnings growth. That's tough to come by when hospitals blew their wads on the big IT investments of the past few years. Now they're trying to make them work instead of buying new systems. Wasn't it obvious that the capital spending spree had to end eventually when it's mostly nonprofits that were doing the buying?
• The more investors fear economic problems, the more likely they are to occur.
• Cerner actually beat earnings estimates, but got hammered on lowered revenue. Translation: Wall Street figured they just slashed costs (like with their layoffs) instead of growing the top line. You can't shrink your way into long-term profitability. Plus, it's hard for software vendors to earn big hardware markups these days since hardware is cheap, systems aren't always locally hosted, and it's easy for the customer to bypass the software vendor and buy their own hardware.
• Companies contemplating a bandwagon rush to IPO are probably reconsidering. Will that lead to more private equity deals? Maybe, although those won't get financed if credit dries up.
• Poor economic conditions lead to unemployment, which leads to more uninsured, which leads to higher hospital bad debt and less optimistic bond ratings. Hospitals are not immune from economic problems; they're just a trailing rather than a leading indicator. Hospitals struggle without access to cheap bond debt, although lower interest rates may offset some of the effect.
• Nothing suggests that economic or market problems will end soon. This is the shot across the bow, with the bellwether industry stocks taking a beating. If service revenues take a hit like you'd expect, vendors are in big trouble, at least for the short term. On the brighter side, it's during those bleak times that companies often figure their stock is already bombing, so they might as well make some good but potentially unpopular and/or unprofitable decisions for the long-term good.

2. Hydroelectric Power: VA Facilities Close Due to Data Center Flooding

Facts and Background

The VA's Tennessee Valley Healthcare System closed its regional clinics in Tennessee and Kentucky after a broken water pipe at its Nashville campus damaged servers that run the information system for the clinics. All routine appointments and surgeries were cancelled on Monday and Tuesday of last week.

Opinion

That's the problem with centralized information systems. When the grid is damaged, the impact is widespread.

Musings

• Hospitals should take the hint to dust off their business continuity plans. Remember when Memorial Hermann flooded several years ago and lost all their systems? Imagine the impact now that automation is common in high-risk areas like ICU, ED, and surgery and staff have forgotten how to fall back to paper. Outages are no longer inconvenient, they're dangerous. That the VA would close clinics rather than run them on paper speaks volumes.
• Image the confusion and anger when all those patients showed up for scheduled visits, some of them likely having traveled considerable distances and with some difficulty. There would have been no easy way to contact all of them at once to advise them to stay home.
• How many hospital data centers are below ground level or have overhead pipes? Most of them. Water flows downhill.
• The hardest redundancy to build involves a widespread disaster like a tornado, hurricane, or electrical outage. It's not much help to have a cross-town hot site when that happens.

3.  Non-World Wide Web: Internet Outage Cuts Off Asia, Middle East

Facts and Background

Three data cables under the Mediterranean Sea snapped last week, taking the Internet offline in several countries in Asia and the Middle East.

Opinion

This is another infrastructure wake-up call. The economic impact of an Internet outage is unfathomable now that so much commerce depends on Web access.

Musings

• Three underseas cables cut in a couple of days. Coincidence?
• 95% of telecom and data traffic is carried by undersea cables, with only 5% by satellite.
• All those companies that outsource to India and other countries must have taken a productivity hit.
• Do you know if your data is offshore, and if so, do you have a backup?
• The worst question you can get as an ASP or SaaS vendor: "What happens if the Internet is down?"
• At least in this case it wasn't a guy up the street on a backhoe that wreaked havoc, which is what causes hospital outages 95% of the time.
• If it happened here, productivity would likely go up as lack of access to gossip, game, and porn sites would force workers to actually do something productive.

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