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Technology Stocks : MSFT Internet Explorer vs. NSCP Navigator -- Ignore unavailable to you. Want to Upgrade?

To: Li Cai who wrote (14885)	12/13/1997 6:43:00 PM
From: Daniel Schuh	Respond to of 24154

Microsoft Ruling Carries Some Fateful Implications nytimes.com Challenge to Microsoft: Old Antitrust Law in a 'New Economy' nytimes.com The good gray NYT weighs in on the ruling, and they're moderately impressed. The first is from internet beat guy John Markoff, the second is from the front page, but I liked Markoff's headline better:-). It seems that this ruling may be fairly serious after all. The judge seems to be taking the matter very seriously. Good for him. From Markoff's article (first link): At issue in the antitrust case is the fact that Microsoft, in at least some instances, required hardware companies that wanted to ship their computers with Windows 95 already installed to also install Internet Explorer. In his temporary ruling, Judge Thomas Penfield Jackson called the company's control of the operating system market a "monopoly" and warned that this "bundling" of its browser with Windows had so stifled ompetition that Microsoft "might also acquire yet another monopoly in the Internet browser market." I think I pulled that quote out the other day too :-). "'Integrated' is a code word at Microsoft that simply means bundling," said Andrew Schulman, a senior technical editor at O'Reilly & Associates, a publisher of technical books, and the author of "Unauthorized Windows 95," an insider's guide to the software. "I don't see anything that any reasonable programmer would call integration." Despite Microsoft claims that Windows 95 requires Internet Explorer to function, Schulman said it was a simple matter for even nonexpert users to turn the browser off. This is presumably for Win95, Win98's no doubt intentionally meant to be another story. For sound technical reasons, it's what the customers want, it's inovative and all part of the integrity and uniformity of the Windows experience, blah blah blah. From the other article: But in issuing a temporary order Thursday that bars Microsoft from forcing computer makers to bundle its Internet software with its popular Windows operating program, a federal judge stated that the antitrust issues surrounding Microsoft are not mainly about the intricacies of software programming. Instead, citing Supreme Court rulings in other industries, the judge declared that the issues in the Microsoft case are ones of old-fashioned market power, its use and its potential abuse. "Microsoft's 'unfettered liberty' to impose its idea of what has been 'integrated' into its operating systems stops at least at the point at which it would violate established antitrust law," wrote Judge Thomas Penfield Jackson of U.S. District Court in Washington. But of course, the people here who argue that Microsoft is somehow totally different and antitrust can't possibly apply are usually the same ones who deride any technical opinions that don't hold with "One Microsoft Way". So it goes. In his ruling, Jackson seemed to suggest that Internet Explorer appears to be a separate product, and he raised antitrust issues extending beyond the consent decree. He cited two Supreme Court rulings, one in 1984 addressing whether anesthesiology services were a product separate from the other services provided by a hospital and another in 1992 involving photocopier equipment and copier parts and service. In those cases, the court ruled that the key issue was not so much whether the services were integrated but the "character of the demand" and whether they were seen as "two distinct product markets" in the "eyes of the buyers." In short, Jackson appeared to be saying that the issue he was deciding in curbing Microsoft's marketing of its browser was market behavior and not technology. "How this plays out remains to be seen," said Carl Shapiro, professor at the University of California at Berkeley, who was formerly the chief economist in the Justice Department's antitrust division. "But the ruling certainly shows that Microsoft cannot consider itself immune to antitrust law." Good thing, that. Those who disagree can write their legislators, maybe they can get statutory immunity like MLB. Until then, it looks like it'll be an issue for a while. Cheers, Dan.

To: Li Cai who wrote (14885)	12/13/1997 7:18:00 PM
From: VICTORIA GATE, MD	Respond to of 24154

Li Cai re< It looks like that the market, and, therefore, MSFT will have a nice rebounce next week. > but take any rebounce to get out ORCL , if you did hold Sell your ORCL ( down 48.2 % ) buy some amount $ on EFII only at 14 5/8 or lower( down 75 % ) EFII will be back , ORCL is not ( i do not own both ) just try to HELP BYE some more to read December 29, 1997 The 1998 Fortune Investor's Guide Fortune Picks the Brains of Four Scary-Smart Tech Investors What's the next big software play? Are there net stocks worth owning? What about intel? Is the tech boom over? For answers, read on. Andrew Serwer; John Doerr; Ron Elijah; Roger McNamee; Mary Meeker The indisputable heroes of this bull market have been tech stocks. Year after year, shares of companies like Intel, Microsoft, and Dell have paced the market. Yet even these superstars haven't escaped recent maelstroms. The big question now is, Are tech stocks Wall Street's version of the Chicago Bulls--tired champions showing their age--or are they merely taking a breather before another great run? With that and many other questions in mind, FORTUNE called together some of the way-smartest investing minds in infotech. John Doerr of Kleiner Perkins Caufield & Byers in Menlo Park, Cal., the nation's preeminent venture capital firm, has nurtured a pantheon of companies including Compaq, Sun Microsystems, and Netscape. Ron Elijah, portfolio manager of two Robertson Stephens funds, the Value+Growth Fund and the Information Age Fund, has both a superior understanding of technology and a stellar investing record. Roger McNamee, general partner of Integral Capital Partners, also in Menlo Park, is one of the most quoted commentators on the infotech scene. Mary Meeker is Morgan Stanley Dean Witter's highly regarded PC and Internet software stock analyst. Besides being a truly big-picture thinker, she is also one of the best writers on Wall Street, turning out insightful and (gasp!) witty research reports. This gang of four convened recently with FORTUNE senior writer Andrew Serwer in the boardroom at Kleiner Perkins headquarters. Enchiladas, rice, and beans were served. There's obviously been a lot of anxiety out there since Oct. 27. Have we entered a new era of high volatility? Roger McNamee: We track an index of 600 technology stocks. On average they're down 37% from their 52-week high. This is not a dangerous time to be buying quality technology companies. Ron Elijah: Look, we go through corrections. These are stocks that go down in corrections. They do have higher betas. Everything in my portfolio went down what it should have gone down. The Nasdaq dropped 16%, and my stocks are down 25% to 30%. So you think it's more a beta phenomenon than a sea change? McNamee: The perception this summer was that we were in a state of stock market perfection. What happened was, first, the UPS strike, and then the problems in Asia. There was a whole series of events that took a beautiful environment and made it less than perfect. But there is no change in the technology world or the investment outlook for those companies. Let's skip over to venture capital. John, how has all this turmoil impacted the mindset of VCs? John Doerr: Venture capitalists are a little more sensitive to valuation than before. But some $10 billion was raised in venture capital in 1996, and that's up 100% from the year before. Mary, Roger was just saying that nothing has changed in the industry. Maybe that's true, maybe not. But won't Asia's economic problems affect some of these companies? Mary Meeker: The rate of growth in some sectors has slowed. We had some earnings disappointments. We won't know about Asia for six months or so, but it seems as though demand continues to be pretty strong. Also, technology isn't monolithic--you can have weakness in certain pockets and not have weakness in others. McNamee: That's right. Technology consists of literally dozens of segments. Every year certain tech stocks have done very well and others have done very poorly. What's going on in Asia will clearly affect some segments of technology, but to describe it as an industrywide problem is, in my mind, completely inappropriate. Does Asia have you concerned, Ron? Elijah: I went through fear and depression because I own quite a bit in the semiconductor and semiconductor capital-equipment areas, and they went down the most. But we called up the companies that are in our portfolio--they all say they don't see any downturn yet. Also, Asia is a manufacturing base for U.S. companies, and most of the product made there is exported. These businesses are in dollars, so in some ways U.S. companies are actually going to benefit because the local labor force just got cheaper. McNamee: I'm not sure I completely agree with that. I think it's too early to tell. There were countries--Korea comes to mind--where government policy encouraged capital investment in semiconductor industries to a degree for which there was no corresponding economic benefit. You're going to see a shift in priorities in many of the Asian Tiger countries toward some kind of return-on-investment calculation. I share Ron's view that the long-term impact on the semiconductor and especially the semiconductor capital-equipment industry is going to be minimal. Elijah: I'm not disagreeing with you, because you're right. The Korean government fostered these businesses, and there was no way it was sustainable. Does trouble for Asian tech industries mean good news for startups here, John? Doerr: I don't see American startup companies competing with Korean subsidized businesses. If anything, startups are collaborating with them. In the semiconductor industry, we're seeing a lot of chipless, fabless [fab is tech-speak for "chip factory"] intellectual-property companies like Rambus or Chromatic Research that simply ship some bits over there and get back dollars from licensing. For me, what's more important than the situation in Korea and Asia is the fact that new Net businesses, especially those involving transactions or commerce, are growing ahead of everybody's expectations. The potential here is at least three times what the personal computer's was in the early 1980s. So I believe that we're at the very beginning of a very, very long-run phenomenon that will be a much, much bigger deal than the PC. Whoa! You mean Internet companies? Doerr: Not just Internet companies, but Internet commerce companies. Amazon.com is an example, ETrade is an example, Onsale is an example. The Web changed everything, and the changes have just begun. Meeker: ETrade has $8 billion in customer assets. Amazon has more than a million customers; they basically had zero customers two years ago. We haven't seen that kind of growth for any business that I can remember. Look at Amazon. The market for books is $85 billion a year. Less than 1% of it is online. If 10% of the book market goes online, the leader could easily have a 30% to 70% share of that business. Now look at search engines. It's a battle between Yahoo, Microsoft, AOL, and Excite. That's a real business. How can you replicate a Yahoo? It would cost at least a billion dollars to replicate this company. They still have a 40% share of Web usage--and Web usage has grown dramatically. Doerr: I happen to think that Excite is really undervalued relative to Yahoo. It's got about one-sixth the value, and I think it's only a couple of quarters away from profitability. There's not going to be just one dashboard on the Internet. Still, it's tough to make calls. I know someone who puts up Amazon's and Barnes & Noble's Websites side by side on his PC. The prices are the same; he just picks the one that ships the book he wants faster. So much for brand loyalty, right? Meeker: It's the same thing people said about America Online: "What's the big deal? It's just a simple interface." Doerr: I remember skeptics saying that about Compaq once too. What do you think about these Internet stocks, Ron? Elijah: I own America Online and Yahoo. I look at AOL, and it reminds me of an HMO. They've got ten million members. That's the asset I purchased when I bought it six months ago. And they're going to find a way to make money through those ten million members. I own Yahoo because I think it's going to be the dominant interface on the Internet, and there's going to be tons of commerce done on the Internet. Meeker: The Internet is driving the growth of the entire infotech industry. I have never felt more comfortable doing five-year financial models for the companies I cover. We used to be so worried about when the PC industry was going to saturate. The rate of growth may slow, but now with the Internet, why shouldn't we get households buying two PCs per year? Elijah: Yes, the equation has turned around. The Internet isn't happening because people are buying PCs. People are buying PCs because of the Net. I want to comment on Intel. It took me a long time to figure that company out, and it's actually very simple. Intel's not slowing down. It's just adjusting right now. Look ahead, and you can see that next year the company breaks free again. Meeker: Yes. Six months. So we should have no fear about the future of Intel and the PC manufacturers? McNamee: What's going on is, PC makers are trying to emulate Dell's business model of build-to-order. This is resulting in a substantial shrinkage in the chip industry's pipeline. In other words, the length of time between Intel's making a microprocessor chip and a customer's purchase of a PC that contains that chip is getting shorter. The industry has probably taken four weeks out of the pipeline in 1997. That pipeline will shrink further because IBM, Hewlett-Packard, and CompUSA are creating build-to-order businesses. Intel suggested at its recent analysts' meeting that this phenomenon will cost them half a billion dollars' worth of revenue this year. Meeker: Why they didn't fully appreciate that two quarters ago is beyond my comprehension. Assuming Intel can handle this pipeline shrinkage, as you call it, do you think it can successfully negotiate its way through the new world of networking? McNamee: That's the challenge Intel faces. I think it's doing a great job of positioning itself for the networking market. But you're talking about taking a business that's tens of billions in revenues and repositioning it--you don't do that by snapping your fingers. I think Intel's profitability will be lower in 1998 than it was in 1997, but Wall Street's expectations are coming down enough to compensate for that. And don't forget, this is one of the five greatest companies in our economy. John, what trends in Internet stocks should we be paying attention to? Doerr: We were talking about PCs earlier. I wanted to make a point about a larger trend I call TCs, or thin clients, which is profoundly affecting how people are using connected computers. "Thin client" sounds like someone with a health-club membership. What does it mean? Doerr: Thin clients are network applications that let your PC talk to your server. It means that all you do to make your PC work is use your Web browser. You don't have to install any other software. So instead of having a big hairball of software on a huge PC, people are using the Web browsers as the interface for all kinds of applications. I'd put my daughter's college funds in this trend. What stocks do you like here? Doerr: The premier play in thin clients is Citrix Systems, which makes software that lets business run software on PCs from servers. Another is Netscape. Sun Microsystems is a play on thin clients. Amazon is a TC application. So are health-care applications that are coming. So are human resource applications. I can make a thin client run on any PC--that $1,000 one or a $5,000 Pentium II Pro. TCs are where it's at. But this wonderful TC industry won't really take off until the online world runs a little faster, will it? McNamee: If you go back ten years, there wasn't enough hardware horsepower to run the software applications people were using. Now the thing that there isn't enough of is bandwidth. Doerr: So now we've got 600- or 700-horsepower motors in all of our cars. Instead of running them around the race track, we're taking them out on little one-lane dirt roads. The highway--the bandwidth--is not there. Mary, is this bandwidth bottleneck the kind of problem a company like @Home would solve? [@Home provides Internet and other online services to consumers and businesses using cable modems to connect their PCs.] Meeker: I would say so. People looked at the value of @Home and said, "In excess of $2 billion." But Bill Gates has made a billion-dollar investment in the cable industry [Microsoft bought a $1 billion stake in Comcast earlier this year] just to put his toe in the water. And he may make more investments in this industry. Gates is interested in cable because of its wide bandwidth. In addition, the WorldCom-MCI deal to me was the most stunning piece of M&A activity I've ever seen. Why? Meeker: They will have a soup-to-nuts business solution for long-distance, local, and Internet service. It's everything you need from a telecom service company. They'll have 30% to 40% of the Internet traffic. McNamee: When we used to think of the telecommunications industry, we were talking about voice. All the growth today is coming from data, so the new model of a telecommunications company is one that has a network optimized for data traffic. WorldCom has snuck up on the entire industry. If you go back through the chain, it started as UUNet getting acquired by MFS, which got acquired by WorldCom, which is now acquiring MCI. People forget that MCI is one of the key Internet backbone players. What about WorldCom's stock? Elijah: It looks great. I just haven't figured out if that guy [WorldCom CEO Bernie Ebbers] is going to pull it all together over the next year and not hit me with any surprises. McNamee: There's always friction in trying to integrate businesses. Look for the next correction in WorldCom stock. I don't know whether it's cheap or expensive now, but I do know that with the next correction, I'm going to get a chance to buy it. Ron, what stocks excite you right now? Elijah: The chipmaking-equipment stocks are a huge buying opportunity. I called up Micron, which makes DRAMs. What are they going to do? They spent $600 million in capital equipment in 1997 and they're going to spend $900 million in 1998. They've got to, the equipment that was leading-edge two years ago is now behind, and if you don't upgrade, you're out of business. That means good things for the equipment companies. McNamee: Those stocks were also huge performers. Doerr: They're all up 50% for the year--minimum. Elijah: Yeah, they were up 100%. I own Applied Materials. I own Novellus. I own KLA-Tencor. I own Lam Research, which is working itself out. I own Asyst Technologies. What about the chipmakers themselves? Elijah: A gradual recovery. I own National Semiconductor, Altera, Intel, Linear Technology. We've had a significant correction and a multiple contraction too, so I think we're in a great spot to be investing in chip companies right now. What stocks catch your eye, Mary? Meeker: I like Microsoft, Intuit, Compaq, AOL, and Amazon. I would also throw in Dell, which is not a natural Internet company, but it's selling millions of dollars of PCs per day on the Net. Dell is offering premier Web pages that are customized for companies so that they can directly buy from Dell. They're up to 200 to 300 of those sites, from zero a year ago. Michael Dell is really focused on expanding this business to more FORTUNE 1,000 companies. Now Dell is able to build to order without customer-service reps. Dell's stock price has gone to the moon. You still like it? Meeker: Still. They're firing on all cylinders. They have the Web, they have international, they have the server business, and the direct-sales model is growing more rapidly than other models in the business. Roger, what about you? McNamee: The people who are building the Internet have a gigantic business opportunity. The obvious leader is Cisco Systems, which is the dominant player in networking. Sun Microsystems is down a ton. I'm sorry, but this company is not going out of business. The stock is unbelievably cheap. You cannot build the Internet without Sun servers. 3Com is another stock that's down a ton. They're having a lot of inventory issues this quarter and people are terrified, but they are No. 2 in networking. They're not going away. We're huge fans of PMC-Sierra, which dominates a number of markets for the chips that you use to build networking devices. A recent IPO called Mmc Networks, which makes a different kind of networking chip. Some people are now saying the run is over for Cisco and 3Com. Meeker: That's what they've been saying for years. So this is really just the pause that refreshes? McNamee: I would suggest that every time you hear somebody tell you that Cisco Systems isn't going to grow anymore, you ought to buy the stock. The same way you should add on Intel. Customers don't want to deal with ten different vendors. These are industries where customers want somebody to set a standard, and they will reward that company disproportionately. Meeker: If you believe in the growth in the Internet, you have to own Cisco. McNamee: Over time, the smart companies reposition themselves. The job that Microsoft has done in the last two years of repositioning itself as an Internet play has been nothing short of miraculous. You never would have thought that was possible. Let's talk about the SAPs and PeopleSofts of the world, the guys that dominate enterprise-resource-planning software. Elijah: I really like PeopleSoft. Owned it for a while. It's one of the few companies that really have a chance to be the next Microsoft or Intel. McNamee: ERP software and human resources software have had tremendous growth. Attractive as it is to invest in PeopleSoft and SAP, you now have a new generation of companies that are addressing other parts of the problem. Examples would be the "customer care" market--Remedy and Vantive have products that help companies do a better job of taking care of the people who generate the revenues: the customers. Genesys Telecommunications Laboratories helps companies automate call centers so that once a customer calls on the phone, you actually know why they're calling and can help them out. Manugistics and i2 Technologies let you analyze your business in real time and optimize your business processes. Soon a whole series of companies will go public. Doerr: He's making a really key point. The second-best use of the Internet--after parents' and teachers' using it for education--is connecting enterprises to their customers. FedEx allows you--if you can't sleep at night--to track your package right off your doorstep through Memphis to wherever it's going. This system has reduced operating costs by more than $20 million and improved customer satisfaction enormously. Reaching out is what all the new Net applications are about. I see this wave of companies--you tell me, Mary or Roger--it's about a year or two from now. Meeker: I agree. I'd call it business reengineering software. We'll have a few names come public maybe later in 1998 because a lot of them haven't fully matured. Most companies are actually coming public before they are ready nowadays because these markets are growing so rapidly. The recent record of some IPOs certainly suggests they are coming out too soon. Elijah: I don't think that's uncharacteristic, though. Meeker: Well, it's usually not this bad. There's about a 60% failure rate right now for Internet IPOs, and if you look at the history of technology IPOs from 1980, typically there's been a 40% failure rate. McNamee: But the last seven years of the 1980s were at least as bad as what's happened to the recent Internet IPOs. If you look at the period from mid-1983 through 1990, the average technology stock actually had a negative return in the biggest bull market in history. IPOs during that period were a disaster. It's been the bull market of the 1990s that has caused them to recover. Yes, but some of these companies seem to think their stock prices can float on air. Meeker: You can't value these new IPOs on a price-to-earnings basis because a lot of them don't have earnings. You can't value them on a discounted cash flow basis because it's hard to figure out the guaranteed cash flow. So what people are doing is asking, "How big is the market opportunity? What kind of share can this company have?" In looking at Yahoo, how many Internet users will there be in 2000? We think 150 million people is a lay-up. If Yahoo could maintain its 40% market share when the market is 150 million--that's more people than watch prime-time TV. Doerr: If anything, we're in this rare period of normalcy where really good companies can go public and really bad ones can't. I was going over our six IPOs for 1997. NeoMagic, Onsale, Rambus, Amazon.com, @Home, and Corsair Communications are up on average 200%. The worst performing, NeoMagic, is up 73%. Rambus is up 2,000%. McNamee: A lot of things we felt were critically important on the Internet two years ago are turning out not to be nearly as big a deal. I can't imagine what's going to be important five years from now. I'm sure electronic commerce will turn out to be important, and so will business-to-business communications. Doerr: So what's your advice to the retail investor? McNamee: Well, I think you have to look at the infrastructure of the Internet. And business-to-business communications systems. I think there are enabling technologies to look for. We were talking earlier about Rambus, which allows a huge increase in the bandwidth inside computers. If you sat there with a list, you could start with Microsoft, Intel, and Cisco. 3Com and Sun are incredibly cheap right now. Then you want to look down to the next tier because they always get really hammered in markets like this: the semiconductor capital-equipment group, chips, and the enterprise-software category. But aren't these stocks too expensive? Meeker: One question we deal with constantly is: Should tech stocks be trading at these high valuations? Arguably, technology stocks have been dramatically undervalued for the last half-decade. This is partly because people really didn't understand technology. They were scared of it. So maybe they deserve multiples now. Also, now the trigger pullers at the mutual funds are younger and much more technology savvy. McNamee: Technology is now part of the fabric of society, and that just wasn't true in the past. If you look at technology through the 1970s, it was an industry dominated by the government and military. In the 1980s it was dominated by business. In the 1990s it is a mass-market business. Absolutely. I was recently riding a subway in New York City, and a couple of teenagers were going through a tech catalogue and discussing the merits of digital cameras. Meeker: And they'd just come back from Comdex! McNamee: I liken this to the period after the Second World War, when the U.S. economy was the only one intact. The intellectual property underlying almost every critical technology today is owned by companies in the United States. Also, up until 1989, U.S. technology companies sold their products only in North America, Western Europe, and Japan. Now they can effectively sell to 100% of the world's population instead of only 30%. That's a gigantic shift that explains the golden age that we've been experiencing. Doerr: Think of the billions of Chinese who are going to need personal computers. Shifting gears here a bit, John, talk to us about Microsoft. Doerr: Got to own the stock: great company; repositioned; competitive in the Internet space. Anybody Else? Meeker: Near term, I think the Department of Justice investigation will end with not much more than a slap on the wrist. McNamee: Great company. The only thing that bothers me is that they are less open-minded than they used to be. They see the whole world in terms of Windows, which is increasingly a legacy product. Now for the real test of what companies make promising products. What kinds of technology do you folks use personally? Doerr: I have a two-way alphanumeric pager from Mtel, the Skytel service. This is a node on the Internet. I can send or receive a message to anybody on that. This is really cool. With a tear, I just moved away from the Macintosh to a Windows 95 IBM Thinkpad. Meeker: IBM Thinkpad, Motorola pager, StarTAC phone. Compaq PC, a Dell PC, and Web TV. McNamee: I continue to use a Macintosh PowerBook computer. I use a Skytel pager and a Motorola cell phone. The PC I use is a Dell 300-megahertz Pentium II. Did you buy it on the Net? McNamee: Actually I did. It was a great experience. Ron? Elijah: A Pagenet beeper, unfortunately one-way. I have the Qualcomm CDMA cell phone. That thing is phenomenal. IBM Thinkpad. What about Websites? Doerr: Netscape, because I start up there all the time. I probably buy more stuff from Amazon than anywhere else in the world. I also go to Excite and Yahoo. I enjoy Slate and Washingtonpost.com. Meeker: Many of the same. Also News.com and UPA.org, the Ultimate [Frisbee] Player Association Website. McNamee: I go to Motley Fool. I go to Yahoo a lot. I go to Excite very often as well. I go to Microsoft and Intel sites. And Dead.net, which is a Grateful Dead affinity site. I buy a ton of books on Amazon.com. I'm trying single-handedly to make their quarter