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To: LLCF who wrote (97117)	4/21/2001 6:23:42 PM
From: patron_anejo_por_favor	Respond to of 436258

Interesting column on tech valuations, and the tech "recovery" by Gretchen M: nytimes.com April 22, 2001 Market Watch: A Splash of Cold Water on Technology Stocks' Revival By GRETCHEN MORGENSON With Alan Greenspan doing his best to spur on the economy, many investors seem to believe that it's back to the races in the stock market. Buyers have been particularly giddy about technology stocks, pushing the Nasdaq composite index up 10.3 percent last week. But one authority on technology stocks suggests that investors pull up on the reins a bit. Steven Milunovich, technology strategist at Merrill Lynch, says he believes that it is especially important for investors to remember that yesterday's growth stocks more often than not will falter tomorrow. Few tech-stock investors appear to be tuned into this thinking. The Merrill Lynch technology index is trading at 166 times trailing earnings for the 100 companies in it, including Cisco Systems, EMC, Altera and AOL Time Warner. By contrast, the Standard & Poor's 500-stock index trades at 27 times earnings. Hopes for the sector are certainly high. Too high, Mr. Milunovich said, for two reasons. First, even after slashing their revenue and earnings forecasts for technology companies, analysts have long- term expectations that are still far too optimistic, he said. For instance, analysts expect 85 percent of companies to increase their sales by a compounded rate of 20 percent or more during the next three years. But since 1981, only 36 percent of technology companies have achieved such growth rates for any consecutive three-year period. Today's depressed state of capital spending is another concern. Mr. Milunovich said the rate cut by the Fed last week was in large part a reaction to the severity of the capital investment slowdown. The Fed's statement included this comment: "Capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward." If the Fed is right, technology earnings are probably not going to be rebounding anytime soon. And while stock market investors are famous for spotting turnarounds well before they are quantifiable, Mr. Milunovich thinks the recent rally in tech stocks has been overdone. "Investors have been very impatient trying to call the bottom in the Nasdaq," he said. "I'm still more on the skeptical side." His skepticism is based at least in part on a study of revenue growth at technology companies going back 20 years. The results show how hard it is to maintain high growth rates for extended periods and indicate that it is difficult for tech companies to produce outsized growth even in nonconsecutive years. Here are the numbers: Of the 1,800 technology companies in the study, only half were able to generate 30 percent compound revenue growth for any three of the years in the study. Only 28 percent could manage such growth for any five years, and just 7 percent for 10 years. As a result, Mr. Milunovich said investors should not rush to buy technology stocks based largely on analysts' rosy growth projections. Yet some technology companies are trading at more than 50 times their earnings estimates. Siebel Systems, Juniper Networks and PMC-Sierra are just three of the companies in this amazing category. "Stocks are due for a bounce," Mr. Milunovich said. "But time is going to be as important as price in getting us out of this technology malaise. Weakness could continue into next year."