Four Horsemen's Reign May End Microsoft, Dell, Intel and Cisco Losing Ground
PALO ALTO, Calif. -- Like legendary sports dynasties, four technology titans -- Microsoft, Intel, Cisco Systems and Dell Computer -- have lorded over their sectors for years.
The so-called Four Horsemen are bellwether stocks of Nasdaq, which often rises and falls with their fate.
But as the economy sputters and tech stocks struggle, they no longer seem unconquerable. Some even doubt that the juggernauts will lead Nasdaq in the new decade.
Red-hot revenue growth in their traditional markets is slowing, as the high-tech industry rapidly evolves. Young start-ups and old rivals are grabbing market share. Analysts are skeptical that their strategies will keep them on top in the fast-moving Internet age. Microsoft may even be carved in half when its antitrust case is done.
The Four Horsemen also are losing favor on Wall Street.
One ominous sign: Their combined stock market value has slipped as a percentage of Nasdaq's value. Two years ago, the Four Horsemen's market value accounted for 30% of Nasdaq's $2.3 trillion value. Now, it is about 22% of Nasdaq's $4.4 trillion value.
Many fund managers have dropped Microsoft, Dell, Cisco and Intel from their top holdings, replacing them with faster-growing Internet and communications stocks, says Morningstar, a fund-research firm.
Some analysts say the Four Horsemen, having risen to power with the rise of the personal computer, have seen their best days. Sales of cellphones and handheld devices are projected to gallop past PCs in a few years.
The future, they argue, belongs to younger challengers, including optical-equipment firm JDS Uniphase, networking start-up Juniper Networks and Internet software firms Veritas, Siebel Systems, I2 Technologies and others.
''The old stalwarts are leaving the doors open for new contenders,'' says Matt Johnson, strategist at Thomas Weisel Partners in San Francisco.
No one is predicting the downfall of the Four Horsemen -- named after the Notre Dame football legends of the 1920s -- in the near future. History, though, shows that even the mightiest tech empires eventually weaken.
''I wouldn't write them off just yet, but even the best companies fall quickly behind if they aren't astute enough to react to new markets,'' says Dwight Davis, an analyst at Summit Strategies in Kirkland, Wash.
In the 1960s, semiconductor king Fairchild withered after Robert Noyce, Gordon Moore and Andrew Grove left to found Intel. In 1982, AT&T was broken into seven ''Baby Bell'' companies in the wake of antitrust challenges. A decade later, IBM, the legendary maker of mainframe computers, was ambushed by the rise of PCs.
In the old smokestack economy, industrial giants such as Standard Oil and Carnegie Steel reigned for decades because they controlled factories and other physical assets, says George David Smith, an economics historian at New York University.
But today's high-tech elite will likely lead for a shorter time. Why? Because their most prized commodity is intellectual -- not physical -- capital. And no firm can stop the brain drain of technical workers who will always leave to create new companies, as the Four Horsemen have seen.
Most recently, Cisco executive vice president Don Listwin, a rumored successor to CEO John Chambers, left to be CEO at Software.com.
Technologies also evolve quickly, and companies are hard-pressed to stay ahead of the curve :
* Take Microsoft, the world's No. 1 software maker. The $23 billion company ignored the Internet in the early 1990s while Netscape, America Online and Yahoo dashed ahead. Analysts say Microsoft also snoozed through the recent explosion of software operating system competitor Linux and the ''open source'' software movement.
Playing catch-up, Chairman Bill Gates and CEO Steve Ballmer this summer unveiled Microsoft.net, their biggest move yet to retool the firm with Web-based software for companies and consumers.
* Intel also has lost its aura of invincibility. The $34 billion chipmaker, which prides itself on efficiency, has suffered all year from delays and recalls of chips and motherboards.
Chip shortages have angered customers, including Dell, Compaq and Gateway. Gateway defected last year to AMD, Intel's key competitor.
Recently, Intel warned that a global spending slowdown would hurt its sales in nearly all products and markets. Analyst Jonathan Joseph of Salomon Smith Barney predicts Intel is headed for its worst quarter in more than a decade.
By recasting itself as an Internet-oriented company, Intel and CEO Craig Barrett are betting that the company will rake in billions in fresh revenue from networking chips and other Web-based products and services.
Intel's shares rose more than 10% Monday after it laid out plans to deliver much speedier chips by 2005. (Story, 2B.)
* Many have crowned Cisco the King of the Internet. The company enjoys $26 billion in revenue and $386 billion in stock-market value. Chambers vows that Cisco will keep growing worldwide and grabbing market share for networking equipment -- even if a recession hits.
But in the torrid market for high-end Web router equipment, Juniper Networks boasts a 30% share, up from less than 10% a year ago. At the same time, Cisco's share dropped to 68% from 75%, says the Dell' Oro Group, a market research firm.
What's more, Cisco, which grew quickly by acquiring others, may find its buying power hurt by its depressed share price. Cisco's stock closed Monday at $54.81, down from $82 in March.
* Dell, the No. 1 computer maker in the U.S., also faces a rough road.
As PC sales slow, Dell is moving into the faster-growing market for business-server computers. But that market is dominated by competitors such as Sun Microsystems, IBM and Compaq. It won't be easy to snare market share.
To lessen Wall Street expectations, Dell CEO Michael Dell has warned that revenue will grow only 20% over the next fiscal year -- down from its 40% to 50% growth rate of recent years.
''Anyone who expects these companies to continue their high growth rates will be deeply disappointed,'' economist Smith says.
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