john: Some folks think technology is in 'a multi-year depression'...
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Technology may be in a multiyear depression
By Bambi Francisco, CBS.MarketWatch.com
Dispatch from the sober summit
Last Update: 2:15 PM ET July 24, 2001
CARLSBAD, Calif. (CBS.MW) -- Investors may want to temper their excitement about the recovery they're expecting next year.
In a half-filled room at an Internet conference Tuesday in Carlsbad, Calif., gloom and pain resonated in the audience as a fund manager with a stellar track record forecast a further fallout in tech.
"Dan Benton's comments that things will get much worse mean half the people in this room are still too optimistic," said Kristen Koh, a software and Internet analyst for a Goldman Sachs technology fund.
Benton is chairman and chief executive of Andor Capital Management, which boasts $7.5 billion under management. The fund, which has posted 52 percent annual returns for the past seven years, is up 20 percent this year. Benton gave a morning presentation about his perspective on technology stocks at the Internet Summit. See related story on the conference.
Benton went through a number of slides that pointed out such sobering realities as semiconductor and semiconductor equipment spending falling 25 and 30 percent this year, respectively. He countered the notion that there will be a turnaround in the market following a round of Federal Reserve easings. His contention is that the tech industry has matured and that technology is now in a multiyear depression.
Benton also suggested that outlooks calling for a 2002 recovery are overly rosy.
Agreeing with Benton on his assessment, Koh added: "My job would be easier if I could find technology investments to make on the long side."
Looking for a rebound
Anyone who's currently optimistic about the Internet and broader tech health may be in for a rough ride if Benton's forecasts are correct.
In a survey of attendees during the first day of the conference, 48 percent said the worst is over but the speed of the upturn, when it does come, remains unclear. A large proportion of attendees appeared to agree with Benton. Forty-two percent said things will likely get worse before they get better.
Usage vs. user growth
Amid the grim outlook for technology spending and the maturation of the Internet, one encouraging sign is that people are becoming increasingly dependent on the Internet.
"The Internet is growing faster than anyone realizes right now," said Stratton Sclavos, president and chief executive of e-security firm VeriSign (VRSN: news, chart, profile) , who presented at the Carlsbad summit. "In January, 2.4 billion domain names were being looked up every day vs. 4 billion today."
Usage is going up, and it's coming from old-economy companies, he said.
In other words, the number of times a URL was typed in nearly doubled in six months. In addition to providing domain names, VeriSign runs servers that route Internet traffic to the correct server based on the URL typed. The more people using the Net, the more VeriSign's servers are hit.
Corporate debt mess
Ravi Suria, known for raising the red "debt" flag beneath Amazon.com's (AMZN: news, chart, profile) high-flying market valuation last year, is waving a king-sized bedsheet when he speaks of the debt that is plaguing the telecom sector.
Suria, who left Lehman Bros. as a credit analyst to become a fund manager at Duquesne Capital Management, cautioned that the telecom debt is the most "egregious example of what is affecting the economy."
Thirty-five percent of the revenue generated is being used to pay for interest payments on the debt, he said. Suria has been calling for weakness in the credit profile of telecom companies for some time. He reiterated his outlook from last year: "The writedowns from debt losses could potentially make the reported earnings of these companies much more volatile, as the default cycle remains at a high level over the next three years."
In the same report, Suria warned investors that the Fed easing would not solve the problem. "The spread-widening problem is not something that can be solved by a series of interest-rate cuts by the Fed, principally because it is a corporate balance-sheet issue and not a market liquidity issue," he said.
Suria spoke to an audience already well prepared for less than uplifting news. Prior to his presentation, Morgan Stanley analyst Mary Meeker, one of the conference hosts, outlined the stinging reality of the capital markets.
In introducing John Doerr, general partner at Kleiner Perkins Caufield & Byers, Wired contributing editor John Heilemann quipped that Doerr was the creator of pithy aphorisms that have gone wrong. Heilemann was referring to Doerr's oft-quoted statement since 1998: "Believe it or not, the Internet is actually under-hyped. ... We are co-conspirators in the largest, legal creation of new wealth, primarily in Internet companies." See "The Death of Arrogance."
No one disagrees that the Internet has been a great wealth creator. According to a Morgan Stanley report that looked at 362 Net pure-plays, while those stocks were worth $1.1 trillion at one time, that group is now worth $415 billion.
Suria would add, however, the Internet also "created the biggest debt mess in history." |
