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To: Maverick who wrote (876)	1/8/1998 8:06:00 PM
From: Tom Hua	Respond to of 1629

Are networking's salad days over? By Ben Heskett January 8, 1998, 11:55 a.m. PT news analysis No one disputes the long-term potential for the networking equipment market, generally considered the fastest-growing segment of the high-technology industry. But a series of issues, including short-term worldwide economic concerns, market maturity, and millennium madness, could wreak havoc on an industry sector not used to long stretches of diminished returns. The last 12 months were far from a banner year for the networking equipment segment. Of the large networking players--Cisco Systems (CSCO), Bay Networks (BAY), 3Com (COMS), Ascend Communications (ASND), and Cabletron Systems (CS)--not one was immune from the general malaise affecting the industry. Even the dominant and always profitable Cisco felt the pinch of slow international sales, and its stock dipped temporarily as a result. Some feel that this past year is just the opening round in a prolonged period of retooling for networking equipment companies that could extend for several quarters to come. "It's not going to be the go-go years it was in the past," said Craig Johnson, an analyst with industry researcher Dataquest. A recent report by market watcher In-Stat found that the networking hardware market grew 16 percent in 1997 to $26.4 billion, a far cry from the 48 percent growth experienced in 1996. The 1997 growth figure is the lowest ever for the networking industry, according to the firm. As companies announced their financial results through the year, a common thread permeated the discussion: softness in Asia-Pacific markets, especially Japan. That trend could continue well into the new year. "It's a moving target--you don't know how much worse it's going to get," said Martin Pyykkonen, an analyst with Furman Selz. But geographic issues will not be isolated to Asia, according to Johnson. A forthcoming report by Dataquest will point to various worldwide economic hot spots that could affect short-term gains by networkers. Those include the following: The impact of Europe's move to a common currency, a transition that could siphon significant chunks of money away from information technology rollouts. The saturation of infrastructure equipment in North America, where the leading firms are basically battling to unseat an entrenched vendor for large network upgrades, rather than initial network investments. In this market, Cisco remains the eminent force, presenting challenges for others that expect to reap large domestic rewards. Continuing austerity measures being implemented in Brazil, one of the dominant technology purchasers in South America. South and Central America continue to be reasonable areas for growth by networking firms, according to Dataquest, but fragile economies could dampen profit expectations here. "It's a coalescing of many factors: maturing markets, commoditization, head-to-head competition, and macroeconomics," Johnson noted. Another factor that seems to be having a ripple effect across numerous industries is the Year 2000 issue. The millennium bug stems from decisions by programmers of the 1960s to save memory space by using only the last two digits of a year, instead of all four, when referring to the date, a kind of shorthand that programmers continued to use until very recently. But when "00" comes up for the year 2000, many computers will view it as 1900 instead, causing widespread problems. The Gartner Group estimates the costs of dealing with the Year 2000 bug to be between $300 and $600 billion. Another researcher also has noted that companies are generally not far along in IT planning for the new millennium. The result? Dollars normally spent on new infrastructure equipment will likely be used for Year 2000 compliance. (See related story) This is not to say that the networking segment will take an abrupt nose dive in the marketplace. Networkers will continue to benefit from an increasingly Net-centric world, as reported earlier by CNET's NEWS.COM. But the financial community may need to rethink its short-term expectations for once high-flying networking stocks, according to some observers. In the long run, networking firms could still be a good bet for investors. BancAmerica Robertson Stephens analyst Paul Johnson said in a report published in June 1997 that "the networking industry is in the seventh to eighth year of a 20-year investment cycle." While hot markets within networking will continue to abound, success stories may more likely come from smaller firms like Yurie Systems (YURI). Emerging technologies such as hardware that supports gigabit-speed Ethernet--the prominent networking pipe in corporations--could also provide a boost for some. As a consequence of market maturity, however, large firms may generate more revenue through acquisitions rather than new markets, analysts say, a sure sign that what was once a "Wild West" atmosphere in networking may be waning.

To: Maverick who wrote (876)	1/8/1998 8:09:00 PM
From: Tom Hua	Read Replies (1) \| Respond to of 1629

This article is somewhat related to the last post. BTW, note the last paragraph of post #877 (regarding acquisition). Year 2000 bug draining revenues By Mike Ricciuti January 8, 1998, 12:00 p.m. PT What was supposed to be a profit bonanza for technology companies is instead turning into a major revenue drain. The Year 2000 problem, also known as the millennium bug, threatens to derail the revenues of technology providers in the coming year, company executives and Wall Street analysts warn. Big corporations are diverting crucial budget resources to hire additional personnel needed to fix the problem, leaving fewer dollars available for new technology purchases. Wall Street analysts say the first effects of a Year 2000-related revenue slowdown are just now being felt--and it will get only worse throughout 1998. "Of all the factors in the marketplace, Year 2000 issues are much more real than investors realize. They are treating this as a non-issue, and it really is an issue," said Bob Austrian, an analyst with NationsBanc Montgomery Securities. Just last week, database software maker Sybase (SYBS), in announcing an expected fourth-quarter loss, attributed at least part of the shortfall to increased spending by information systems managers to eradicate the millennium bug. The company said in a statement that results could range from a loss of as much as 7 cents per share to a profit of as much as 2 cents a share. Analysts were expecting the database maker to post profits of 12 cents a share, according to First Call. "The Year 2000 issue has caused enterprise customers to spend a significant amount of time and money on fixing the problem," said Mitchell Kertzman, CEO of Sybase. "Sybase, Oracle, Netscape.a lot of companies are being hit by this." That means fewer dollars for new development. And that, in turn, means bad news for Sybase and other makers of infrastructure software, which includes database servers, middleware, and some development tools. Indeed, Oracle (ORCL), the database market leader and the world's second-largest software maker, pointed out in a recent Securities and Exchange Commission filing that Year 2000 spending could interrupt future revenue growth. Oracle reported earnings per share of 19 cents for its second quarter, ended last November. That's a far cry from Wall Street estimates of 23 cents per share. Database server sales grew a lackluster 3 percent. More alarmingly, application software sales were up only 7 percent, compared to 96 percent growth in the same quarter one year ago. The same is true for networking equipment giant Cisco Systems (CSCO), which, in an SEC filing last month, stated that management "is concerned that many enterprises will be devoting a substantial portion of their information systems spending to resolving this upcoming Year 2000 problem. This may result in spending being diverted from networking solutions over the next three years." Cisco said it also has to provide Year 2000 fixes for its own products, potentially increasing Cisco's operating costs. Even profit machine Microsoft (MSFT) is unsure what effect Year 2000 spending will have on its bottom line, and the software giant is keeping earning estimates on the conservative side, just in case. "People will marginally buy less software in the run-up to the year 2000 because they want to make sure what they have works, and works well," said Craig Fiebig, product manager for Microsoft's BackOffice server software. "Microsoft is thinking [about the problem], but I don't know that we have a formal model. However, as we do three-year outlooks, we don't know what will happen, so we have kept earnings estimates conservative." But wait a minute. Wasn't fixing Year 2000 bugs supposed to be a revenue bonanza for software and networking companies? As it turns out, the answer is both yes and no. Austrian explains that the Year 2000 problem, which stems from the inability of computer software to recognize the year 2000 in date fields, is a double-edged sword for technology companies. The panic to make business applications able to recognize 21st century dates has driven sales of new business software, as large corporations opt to replace aging mainframe systems instead of fixing them. "In the mid-1990s, a lot of the large applications vendors have enjoyed extra demand for their software due to Y2K replacements," Austrian said. Those companies include SAP, PeopleSoft, and Baan. Just yesterday, SAP said it will report a 60 percent revenue gain for 1997. But the Year 2000 profit balloon is ready to burst, Austrian said, as most installations of new systems to fix Year 2000 problems are already under way. "We see a slowing in demand for enterprise applications no later than the first part of 1998, with the greatest slowdown toward the middle of the year," he said. "It's like people replacing tires. If they know that winter 1998 will be bad, they'll replace their tires now. But they won't come back for tires next year," Austrian said. And for companies like Sybase and Oracle, Year 2000 spending diversions only spell trouble. "The Year 2000 has been great for SAP and PeopleSoft. But it's been a negative for us," Sybase's Kertzman said. The Y2K problem is contributing to an overall revenue slowdown for database software vendors, said Melissa Eisenstat, an analyst with CIBC Oppenheimer. "Y2K is definitely one reason. And increasing attention is being turned to the application area. So companies are keep their existing database software and are buying new applications." Results of a corporate buying spending study released this week by Merrill Lynch indicate that Year 2000 spending is on the rise, with additional investment in personnel at the top of many lists. The survey of 50 chief information officers indicates that Year 2000 spending, as a percentage of overall budgets, will rise from 7 percent last year to 12 percent in 1998. CIOs also mention Year 2000 compliance as their most important issue by a wide margin, according to the survey. But the Merrill Lynch report goes on to mention that chief information officers frequently complain that it is difficult to find good people to address Year 2000 problems. Consequently, a good part of the planned budget increases cited by CIOs will go toward staffing, where in previous years the dollars went toward new hardware and software, according to the report.