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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: JDN who wrote (49336)	5/30/2002 9:00:57 AM
From: DRRISK	Read Replies (1) \| Respond to of 64865

A Status Report on Tech Fortune.com/by David Kirkpatrick/May 28, 2002 The boom is far from over. The ground is being laid for a renewed cycle of buying, as customer companies move to build upon the essential tech infrastructures they're now --finally -- creating. I'm still surprised by how often I hear people talking as if the technology boom is over; that tech somehow no longer really matters, as if believing that it does is some kind of misguided leftover affectation from the '90s. So here is a sort of status report: some thoughts on information technology, the industry that makes it happen, and the market in tech stocks. THE TECHNOLOGY I've written here before of Intel CEO Craig Barrett's recent prediction that we will have at least fifteen more years of Moore's Law--the now-well-proven postulation of Intel co-founder Gordon Moore that the performance of semiconductors will double roughly every 18 months. That is fundamental to tech advance--because it's the regular improvement of chips that undergirds just about all other technological progress. Faster chips mean faster computers, faster switching, etc. etc. But many forget that computers are going increasingly everywhere and into everything. Tiny, cheap and increasingly fast computers, in the form of microprocessor, memory, or special purpose chips, enable innovations like inflation sensors in the tires of new automobiles, LCD screens for computers and televisions, 5-megapixel cameras, and .5-megapixel cameras that cost $40. All that efficient computing makes an ever-more-efficient Internet as well. And if there is (after Moore's Law) a bedrock technology trend that is catalyzing vast change in the world, it is the evolution of the maturing Internet towards something that more closely resembles one giant distributed computer. This is why Sun Microsystems has for years been prescient in saying "The Network is the Computer." Today, intelligence is moving to the switches--data will increasingly be processed even as it is routed through Internet hubs. Beyond that, the end-points of the network -- read "my PC or cell phone"--are becoming increasingly capable not just of querying the network but contributing to it. This is why Napster and all those other collectively-run music and video services really are portents of things to come. They're the early examples of what is possible when everyone contributes to and gets access to a giant common Internet computer. THE INDUSTRY This is a time of liquidation and consolidation in most parts of the technology industry. The capital bonanza of the '90s allowed too many companies to emerge, and we're moving back to a natural order of things. In addition, some sectors are just naturally maturing. The spending mood of the moment--consumers are but corporations aren't--masks how profound a time this is for technology in business. This is a digestion phase for too much stuff that corporate customers bought during the dot-com boom and in preparing excessively for Y2K. Analyst Chuck Phillips at Morgan Stanley estimates that in just the last two years corporations overspent on technology to the tune of $130 billion! Regardless, technology is finally being put to substantial use in companies. For the next year or so we'll see a continued hiatus in growth for most big enterprise technology companies. But the ground is being laid for a renewed cycle of buying, as customer companies move to build upon the essential tech infrastructures they're now -- finally -- creating. This matters immensely because business buying remains the lion's share of technology purchasing. Tech defined broadly now accounts for well over half of all corporate capital spending. However, a broad economic recovery must precede any sustained recovery in tech -- the customers won't start spending until they see their own sales rising again. But a tech recovery is inevitable. Another huge opportunity for the tech industry is growth in the poorer parts of the world. The biggest companies in the industry know this. Cisco, Hewlett-Packard, IBM, Intel, and Microsoft all have self-conscious programs to reach out to the developing world and expand business there. If they can get a firm foothold as poor people get less poor, the size of future consumer markets could dwarf anything we've ever seen. By some estimates, China will be the world's second largest PC market by next year. How long will it take for it to become number one? THE MARKETS For a few years most of us made the mistake of deducing the basic prospects of technology companies by looking at their stock market performance. That's the reverse of the way it's supposed to work. Even a big market cap does not make a market, in the customer sense. No company could ever grow quickly enough to justify the market price of many tech companies at their peak. This was not a deep, dark secret even at the time. For instance, Carol Loomis noted in a FORTUNE article when AOL announced the purchase of Time Warner that, based upon the combined company's market value at the time of the deal, to give investors a 15% annual return, the company's market cap would have to rise to $2.4 billion by 2015.To justify such a valuation then, its annual after-tax profits would need to be around $83 billion. Valuations for some tech companies are probably still too high, though the market is much healthier now. If investors can keep their senses, we will see that certain innovative and well-managed tech companies have a brilliant future, not that all of them do. The biggest mistake many observers (and one-time stock market geniuses) now make is thinking that because stock prices are down from their idiotic peaks, the prospects for the tech industry are now grimmer. Prospects were never as rosy as the market once suggested. But as my friend Michael Rogers of Newsweek.com likes to put it, we're still in the first scene of the first act of the technology revolution. Technology will continue to be the biggest engine transforming how we all live and work. There remains huge long-term value in the right tech stocks.