Jeff --
Two major vendors mentioned component shortages today: LU and IFX (formerly Siemens Microelectronics). Kathy Szelag, LU's VP Marketing, said there were world-wide shortages in both their micro-electronics and fiber businesses and went on to say they're working hard to get more facilities operational: they have to install and test, and because they can't use normal processes, they've hired experts, up to 150-200 contractors at a time, to get lines ramped. Of the fiber optics business overall, she said, "This is the fastest growing part of Lucent's business. It's more than doubling every year." Referring to memory capacity, Ulrich Schumacher, Infineon's CEO, said prices would be stable for first half of calendar 2000, with shortages in the second half.
In other sessions, PMC-Sierra's CFO John Sullivan said net usage was growing 1000% per year, bandwidth was exploding, semiconductor and fiber optics driving more and more business. Last Q their networking revenues grew 27%; and GMs were 81%. This year estimates are for 100% growth. Ditech Communications CEO, Timothy Montgomery, said they were above projection on revenues, had 20 new customers in '99, 23 more new customers in Q3, and will see 1 billion voice channels deployed over next 5 years, many of them wireless. Network traffic is estimated to grow 17X over next 4 years.
Today's luncheon panel was the best session of the conference so far. The panel members had one central theme: we've gone from a period of ignoring valuations to one where we have to take them more seriously. Bottom line: buy the best companies in the best areas and stick with them.
Speakers were Steven Appledorn, Senior Portfolio Manager, Munder Capital Management; Jay Hoag, General Partner, Technology Crossover Ventures; Roger McNamee, General Partner, Integral Capital Partners; and Joseph McNay, Chairman and CEO Essex Investments.
Highlights:
Moderator: There's a defensive attitude at this conference. Folks aren't looking for stocks to buy but are kicking the tires on the ones they own to see if they want to keep them.
Summing up recent correction, Jay Hoag quoted Yogi Bera who said, "The future ain't what it used to be." He then summarized the last 16 months: 360 IPOs raised $43 billion dollars, 6X all of 1998. In 1Q00 $23 billion put into venture funding, greater than all previous 20 years total. Risk is now being considered. Triple digit returns will be harder to make. Then asking rhetorically if the boom days were over, he quoted John Belushi from Animal House: "Nothing is over till we say it is." Of IPO market: look selectively. Crummy companies shouldn't go public. There will be big gainers and big losers.
Steve Appledorn: Lots of joking re: valuations. On serious side he said they've only had 3 days of net outflows from funds in the recent downturn. He said to be selective. We've come up 20% from the trough. Three considerations: 1) supply and demand: we're seeing a buyers strike. Right now, however, it's oversold; 2) sentiment --- under pressure here and this drives stocks down; gov't not recognizing benefits of network economies; fed reserve is "pushing on a string;" corporate balance sheets have piles of cash, some won't succeed but there will be lots of winners; 3) fundamentals --- when do they kick in? There is increasing awareness of the "p" in P/E; we don't participate in IPOs unless they have a pathway to profitability, we focus on leaders and pass on those that don't make sense. They have to have good management. This is a normal pullback ---- I'm finding great opportunities.
Roger McNamee: February IPOs totalled $11.4 billion, equal all of 1997 and 1998 combined. In March we saw a world class speculative blow-out. Lots of two dollar stocks were masquerading as two-hundred dollar stocks --- some are still at fifty." What comes next? Two themes: 1) fixing bottle-necks, data networkers and semis; and 2) companies that move economy from batch mode to real time --- applications that make this happen --- a whole new generation must appear.
Q: What are you doing differently this side of the correction?
RM: We've gone from 70% venture investing to 15% and started Silverlake for high-end investments.
JM: We're religious about valuations.
SA: We've re-evaluated every position. We're helping management where appropriate. In some cases we've cut and run.
JH: (referring to McNamee) We see late stage ventures as good place, unlike Roger. Also stepping up to trough in public market.
Q: Looking back 4 or 5 years we had MSFT, DELL, CSCO, and ORCL. Who are next four?
JH: Ariba --- the defining company in BtoB.
RM: MSFT looks good at this point. ORCL is great. DELL is fading. World is changing. E-Connections is amazing in BtoB commerce. I don't think we'll have 3 or 4 companies. Many will be prominent.
JM: I like companies with intellectual property. PHCM, BRCM, BRCD.
SA: There will be 6, 8, 10 really big success stories in the Internet space. ORCL, Ariba, InfoSpace and Critical Path.
RM: The physical side is important. Flextronics and Solectron are incredible. Watch fulfillment services --- moving physical goods around the internet.
Q: What about valuations?
JH: BtoC space is tough --- how to pencil out 100% growth. 8 to 10X sales can be justified.
SA: Profitability does matter. There has to be proof at some point. We want clear path.
JM: Discounted future growth, declining P/E to growth rates. (not sure I understood him clearly)
RM: I'm astonished at rates of growth (referring to high-growers) --- I want to own all that have these rates.
>>>>>>>
Restrained optimism seemed to be the overall tone of panel members where statistics from telecommunications presentations were extremely strong.
Pat |
