Here's the article you mentioned, from the NY Times:
MARKET INSIGHT
Seeing Reasons to Believe in Technology
By KENNETH N. GILPIN
t has been more than two years since air started leaking, then rushing, out of the technology balloon.
The Nasdaq 100 index has fallen nearly 75 percent from its peak in March 2000. About 45 percent of the decline has occurred over the last 52 weeks. Since the start of 2002, the index is down more than 20 percent. Yet it is still about 30 percent higher than in early 1998, when it closed at 956.19.
Michael Murphy, editor of the California Technology Stock Letter and chief investment officer of Murphy New World Mutual Funds, spoke last week about technology stocks' prospects. Following are excerpts from the conversation.
Q. Good news from Cisco Systems last week set off a rally in tech stocks, which then fell back. Are they oversold?
A. They are strongly oversold. We have a record level of Nasdaq short-selling. Nobody wants to own these stocks. Big mutual funds own anything but technology. The Cisco news was not that much — they said revenue in the July quarter would be up 5 percent, which translates into a 22 percent annual growth rate. But the reaction to that news shows how extremely oversold we were.
Q. Why are you bullish on technology?
A. We are bullish because of the fundamentals. There is more product improvement and generational innovation going on in virtually every area right now than in the 30 years I have been following this business.
Everything from semiconductor equipment to third-generation cellphones to software, which is moving to Internet-based computing, to data storage, which is moving from big disk-drive systems to storage area networks.
Q. Did technology companies attract too much investment capital in the late 1990's?
A. The problem is that things become obsolete. When a JDS Uniphase writes off $3 billion in inventory, people think they are writing it down. That's wrong. They are taking it to the dump. There was a huge amount of semiconductor equipment installed, but it is now useless. The cost of making an Intel Pentium 4 chip has gone from $100 down to $40. The $100 chip sits idle, and will never get used.
There are 550 million personal computers in the world, and 300 million of them can't run Windows XP. A lot of those PC's were bought in 1999, and their three-year cycle is pretty much up. There are one billion cellphones out there, but the third-generation cellphone is a way better product.
Q. Is there real demand for new equipment?
A. Well, in the first-quarter gross domestic product numbers, spending on computers was up 38 percent, off a very low base. Auto companies and the government are helping electronics.
There is no question there is huge demand for data storage. Over the next three years, we will store more information than in the last 3,000. But storage companies sell big systems that cost as much as $1 million each. Even if the chief information officer at a company wants to spend that kind of money, the chief executive doesn't. The chief executive wants to make sure the company is really out of recession. At some point this summer we think spending for those sorts of things will be emerging.
Q. Which two tech stocks you would sell now?
A. We advocated selling Lucent and Nortel. We don't think Lucent has its act together to come back. It's not too late to sell. Nortel has been so badly hurt by all this they may have to exit the optics business completely and turn themselves into a wireless company.
Q. Which stocks are you buying?
A. We have been buying Xlinx, which is the clear leader in programmable chips. Nvidia, which is a pretty controversial stock, is a company we know well and is gobbling up lots of features to put into integrated graphics chip sets.
Another is Taiwan Semiconductor, which in a few years will be manufacturing 25 percent of all the semiconductors in the world. During the recession they kept spending money and modernized all their plants. Now they are as good at manufacturing chips as I.B.M. and Intel.
Q. What about the prospects for Intel, Microsoft and Cisco Systems?
A. We are finding it easier to find good big stocks than good small ones. That is a big change that is mostly due to the fact that venture capitalists are not making any new investments. Bigger companies have managed to gain market share, and a lot of their erstwhile competitors have gone away. We have been buying all three of these stocks, and think Intel is the cheapest of the bunch. But with around $10 billion in cash, Cisco is looking like a bank. Microsoft is in the same position. |
