“While the broad market unwrapped an early holiday gift this year, capping off eight weeks of gains Friday, a number of tech’s former shining stars remain in the dumps,” writes Erin Schulte in today’s Wall Street Journal.

“Some have gone as far as announcing reverse stock splits this year in a last-ditch effort to breathe life into wheezing share prices, save themselves from a humiliating delisting and hold the interest of institutional investors, who shy away from shares that sell for less than $5.”

“Reverse splits can magically transform one-time penny stocks into respectably listed issues — at least for a while. But investors who hold these issues should beware — the benefits of a reverse split tend to fade faster than disappearing ink.”

“Companies that declare a reverse split tend to seriously underperform benchmarks in the long run, according to market professionals and academics who study the practice.”

“And these days, it’s not just obscure one-digit wonders who suffer the fate — some former market titans and widely-held companies have resorted to the reverse split.”

“Handheld-device maker Palm had a 1-for-20 reverse split in October. The board of Lucent Technologies authorized the company to seek shareholder approval for a reverse split at its annual meeting in February, though its shares have since risen above a dollar. Even phone giant AT&T recently approved a 1-for-5 split.”

“How the mighty have fallen.”

“In all, stock splits by tech names this year have jumped in number to 72 — more than the last two years combined, according to Merrill Lynch & Co.”

” ‘The high number of reverse stock splits does not give us great confidence in future performance since managements don’t expect a quick snapback in their stocks,’ says Steven Milunovich, technology strategist at Merrill Lynch. ‘Not surprisingly, we found a rise in the number of reverse stock splits following periods of economic weakness.’ “

“Merrill found that a reverse split provides traction to companies in the short term — the 260 tech companies that underwent a reverse split in the last 10 years outperformed the Merrill Lynch 100 Technology Index by 9% in the first month following a split.”

“While the quick upside sounds pretty sweet, Merrill points out that over three months, reverse-split companies underperformed its benchmark index by 4%. The numbers are even more dire 12 months post-split — companies doing the reverse-split shuffle lag behind the index by an ugly 21%.”

“‘Our findings suggest trading on reverse stock splits can benefit investors in the very short run, but not for the long haul,’ Mr. Milunovich says. ‘A split by no means solves stock-performance issues.’ “