Posted at 9:17 p.m. PDT Sunday, Sept. 23, 2001
Fast-growing tech firms lost a bundle
BY JENNIFER BJORHUS
AND ELISE ACKERMAN
Mercury News
The list feels like a hangover from the party where the game was market share at any cost: Silicon Valley's Fastest 50, the companies with the fastest sales growth over a year, sold $10 billion worth of goods and services but managed to lose a staggering $28 billion in the process.
Only three of the Fastest 50 turned a profit. Most of the companies' share prices, a shadow of their former selves even before the Sept. 11 terrorist attacks, have fallen even further since then.
This is the first annual ranking the Mercury News has done based purely on sales growth. And for the most part, it's a beleaguered group, this collection that shot to the top as the rest of the economy slowed down -- sobering reminders of the wildly enthusiastic tech spending that imploded over the last year.
San Francisco fund manager Garrett R. Van Wagoner, whose $250 million Emerging Growth fund is down 68 percent year-to-date, looked at the Fastest 50 list and had this to say: ``There's no short-term good news.''
``Orphans,'' said Minneapolis investment advisor Matthew Fitzmaurice.
``This list is kind of a bubble list,'' quipped 35-year-old Junaid Islam, head of Pleasanton startup Network Robots, which makes programmable computer networking devices. ``I'm puzzled by the whole thing. How did so much money move so fast? How did so many smart people become so careless with so much money?''
And, you might add, why are some people still smiling?
Poking through the gray dust of the Valley's losses are some red coals, insist some fund managers, venture capitalists and analysts. Despite the losses, some of the fastest growers are companies creating real value that likely will continue to grow, they argue.
``If you're an investor, now's the opportunity,'' says Bruce Lupatkin, fund manager for North Bay Technology Partners, a technology hedge fund in Novato.
When polled, Lupatkin, Van Wagoner and a handful of other valley tech watchers quickly culled some promising companies beyond established San Jose energy producer Calpine, which likely popped up on the fast-growth list because of a lift from California's energy crisis. The fact that it's much harder for new technologies to get financing now, thus slowing competition, will only help these promising upstarts, they argue.
Topping everyone's short list is VeriSign.
Mountain View-based VeriSign verifies that companies doing business on the Internet are who they say they are, stamping their Web sites with the familiar gold digital seal. When it bought Network Solutions, VeriSign gained a virtual government-sanctioned monopoly on the three Internet domain name suffixes: .com, .net and .org. For each address using those suffixes, VeriSign gets $6 a year -- more if it provides other services.
Much of the $15 billion in losses VeriSign posted in the latest four quarters are related to the purchase of Network Solutions. It had nearly $800 million in cash and short-term investments on hand in its most recent quarter.
Juniper Networks -- Even though it's been hit hard by the freeze in telecommunications spending, Juniper Networks remains a leading supplier of high-end core routers, the equipment that directs data through the heart of large communications networks. It continues to gain market share from rival industry leader Cisco Systems. It makes money, and if that isn't exciting enough these days, it had $1 billion in cash and short term investments in its most recent quarter.
Riverstone Networks and ONI Systems -- Companies have laid cross-country fiber-optic lines and cooked up new optical networking gadgets till kingdom come. Despite the overkill, there remains a yawning need to get business and residential users inside metro areas hooked to the high-speed digital highway. These two companies address the hole.
Riverstone, in Santa Clara, makes nifty switching equipment for connecting users into metro optical fiber networks. ONI Systems, which has a plateful of solid customers, makes equipment targeted at bandwidth and service problems in metro networks. It even plans to be profitable by Christmas.
Interwoven -- This Sunnyvale company makes software that allows the likes of British Airways, Xerox, Target and the State of California to get their act onto the Web. As Lupatkin says, despite the dot-com nuclear winter, ``businesses will still sort of webify their businesses.'' And despite its losses, Interwoven still had more than $220 million in cash and short-term investments on hand in its last quarter.
NetIQ -- Based in San Jose, NetIQ makes software that manages corporate computer networks. When it bought WebTrends early this year it got a package of software that allows companies like Black & Decker, for instance, to analyze how customers click around their Web site and what products shoppers stick in their little carts. The software runs Major League Baseball's central Web site. Some analysts argue its base of solid, big customers offsets the fact that in its most recent quarter, NetIQ lost even more than the $466.8 million in cash and short term investments it recorded.
As for the biotech start-ups on the list, venture capitalist Mark Wan, general partner at biomedical-focused Three Arch Partners in Menlo Park, picked two he's interested in. (He hasn't invested in either, he said). Conceptus, a San Carlos maker of medical devices, is close to getting FDA approval for its method of non-surgical female sterilization, Wan said. Durect is a Cupertino-based spinoff of Alza, a well-known Mountain View pharmaceutical company, and is developing an implantable device for releasing drugs for pain management. In both cases, it's good technology matched with demonstrated need, said Wan.
Other companies bubbled up on the short lists. Malcolm Fobes, manager of the $100 million Berkshire Focus Fund, is not the only investor who remains committed to Openwave Systems. Openwave, based in Redwood City, makes the software used in handsets and cell phones that enables mobile e-mail, unified messaging and Internet surfing. The seasoned ex-Cisco executives leading it add credibility, Fobes said.
Lupatkin and Michael Sola, who runs the Development Technology Fund for T. Rowe Price, both like Numerical Technologies of San Jose. The company's technology allows chip makers such as Intel and chip design software developers such as Cadence Design Systems to handle miniscule chip features. Unlike half of the others on the list, Numerical losses in its latest quarter were smaller than its cash and short term investments.
There are other individual favorites. But in the end, tech watchers agree, these are young companies competing day-to-day in a rapidly changing market. Anything could happen.
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Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660. |
