Hey Marty, Don't forget about the Leafs - giving the Devils a run for their money! Regards, Rob
More news from Toronto media (remember that it was Ballmer who helped precipitate the drop in tech. stocks - I'm sure he has an interest in talking down capital spending, but it's not clear to me what that might be... oh wait, maybe it's continued dominance of the PC as the local internet server?!):
Ballmer sees scant reprieve for telecoms
Janet McFarland
03:42 GMT-04:00 Saturday, May 05, 2001
Microsoft Corp. chief executive officer Steve Ballmer has some good news and some bad news about the recession in the technology sector.
The good news is that he thinks the market for low-cost technology such as personal computers is already beginning to recover, at least in the business sector. The bad news is that the rest of the industry, broadly speaking, isn't.
The exuberant Mr. Ballmer, who sat down for an interview with The Globe and Mail this week, breaks the technology sector into three components: telecommunications equipment (where Microsoft is not a big player); major capital equipment (where Microsoft has more at stake); and lower-cost equipment such as personal computers (where Microsoft's core business is based).
"The third area that I talked about is coming back a little bit, I see that. The second area I don't think is starting to come back much yet. And the first area is probably not going to come back much at all."
Here's his logic. The low-cost equipment area was never as hard hit, he explains, because it isn't as sensitive to an economic downturn. The second area, however, is much more affected because it moves disproportionately in bad economic times. Most companies spend more than half their capital budgets on major information technology projects, and tighten that spending more than any other area when they are trying to cut costs. They are less concerned with smaller technology purchases, however.
The worst news, however, is that Mr. Ballmer thinks the telecom sector is facing a long, long decline.
He says much of the world deregulated its telecommunications industries over the past decade, spawning a raft of new network operators. They attracted fortunes of investment, most of which was spent on telecommunications equipment built by Nortel and others. "If you actually look at investment in capital, the telecom capital is much more significant than the dot-com bubble," Mr. Ballmer says.
"Most of the dot-com money was trading up and down amongst investors after the fact. Most of the telecom money was new capital that got infused into these startup telecom companies, and then they turned around and spent."
But the grand vision fuelling stock market darlings such as 360networks, Level 3 Communications, Winstar Communications and others hasn't materialized. Too many companies poured into the market, making the competition more fierce than anyone expected. Turns out the world didn't really need so many little companies operating fibre-optic networks.
"I don't think you'll see an investment of capital in companies like that at anything near the level we've seen over the last few years for a long time," Mr. Ballmer says.
"That money has dried up, and I think will dry up for quite a while. I don't expect that to return, because I think the world has decided that many of those business models were somehow flawed. And I think that capital investment in telecom was really a bubble that won't be rebuilt."
Mr. Ballmer ought to know, because Microsoft was one of the investors who shovelled in money and watched it disappear.
"We're a company that actually invested a reasonable amount of money in some of those startup telcos to try to do some things to stimulate broadband, and I guarantee you we wouldn't [invest more]. I think everybody's discovered how tough the business models can be."
Those of us who own shares of telecom companies -- service providers or equipment manufacturers -- have every right to feel discouraged right about here.
If it helps, Mr. Ballmer says Microsoft is putting its money into four industry areas he thinks have a brighter future. Here's where it's investing: servers, integrated business software for small business, consumer software, and new consumer devices such as cellphones.
You only have to look at the Nasdaq lately to see investors have no consensus any more about where to move their money. Mr. Ballmer is betting the farm on a complex Internet strategy, which is still an unproved gamble. But then again, he doesn't have the appealing option of keeping his billions under a mattress like the rest of us.
jmcfarland@globeandmail.ca
Copyright © 2001 The Globe and Mail
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