If this was posted earlier, I apologize for the duplication:
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"Gorillas" Trump Kings And Princes, Investors Learn At Silicon Valley Tech Stocks Forum
MILPITAS, Calif.--(BUSINESS WIRE)--April 27, 1998--In the
parlance of successful technology investing, 300-plus individual
investors Saturday learned that "800-pound Gorillas" are superior to
"Kings" and it's a profitable strategy to choose the strongest
swimmers riding the highest waves among leading technology sectors.
Those messages and more were delivered at the Third Annual
Informed Investors Silicon Valley Technology Forum in Milpitas. In
addition to keynote speeches by high-tech marketing guru and author
Tom Kippola and mutual fund manager Kevin Landis, attendees heard
first-hand from top executives of six diverse technology companies --
Sanmina (NASDAQ:SANM), Coherent (NASDAQ:COHR), VISX, Inc.
(NASDAQ:VISX), QualMark (NASDAQ:QMRK), CardioGenesis (NASDAQ:CGCP) and CKS Group (NASDAQ:CKSG).
Audio tapes of the complete Forum are available for $45 plus
$3.95 shipping/handling. Call 800/992-4683 or visit
www.informedinvestors.com.
Kippola gave a highly informative overview of the principles
discussed in "The Gorilla Game: An Investor's Guide To Picking Winners In High Technology" (www.gorillagame.com) that he co-authored with Geoffrey Moore and Paul Johnson. The book helps individual investors recognize which companies become "Gorillas" in technology sectors and when the risk-reward level to buy those stocks is favorable.
"Gorillas," explained Kippola, dominate their sectors because
they offer the combination of proprietary technology and high
switching costs. For example, Microsoft (NASDAQ:MSFT) is the gorilla
among the desktop operating system providers. On the other hand, Apple (NASDAQ:APPL) and IBM (NYSE:IBM) are "chimps." Compaq (NYSE:CPQ), however, is a "King" among PC makers. While Compaq is dominant, it still faces the risk that a user upon upgrade might switch to Dell (NASDAQ:DELL) or another PC maker because the architecture on those machines, Microsoft's operating system, is the same. This fact reduces the cost of switching.
Contrast that, Kippola said, to the Macintosh user considering a
switch to Windows. Both the architecture and therefore the switching
cost (buying new software and converting existing software) make it
less likely for users to change operating systems.
Other examples of "Gorillas" are Intel (NASDAQ:INTC) and Cisco
Systems (NASDAQ:CSCO). They enjoy a "winner take all" scenario
characterized by increasing returns as market share increases and long periods of competitive advantage. Also, they use their dominant
position to develop related businesses with existing companies.
"Kings," on the other hand, enjoy more short-term advantages.
Unlike "Gorillas," when "Princes" -- competitors to Kings -- cut
prices, Kings have to follow suit quickly. Gorillas, however, do not.
This fundamental difference is reflected in market capitalization of
these stocks, Kippola said, with Gorilla companies valued much higher
than mere Kings. All of these factors, Kippola concluded, help explain
the relationship between Silicon Valley and Wall Street and how
marketing clout translates into market capitalization.
Landis' address was more specific about stocks. As co-founder of
Interactive Investments' (soon to be called Firsthand Funds) anchor
fund, Technology Value Fund, he reviewed the principles that guide his buy/sell decisions.
"You start by find the strongest themes or trends, then focus
your homework there," Landis said. "The research will help you
identify the strongest swimmers on the biggest wave."
Landis cited three trends he believes hold current potential for
technology investors. The first is "better, faster, smaller, cheaper."
These are products that do more, do them faster and better at lower
and lower prices. "This is why you now have cheap anti-lock brakes in your car that have more computing power than the average computer did 10 years ago," he said.
Two industries drive this phenomenon, Landis said. One is the
process industry, i.e., those companies that make the equipment used
in making semiconductor chips, and the second is the chip design
industry. In the process industry, companies "give you a sharper
pencil each year with which to manufacture your chip." Among the
equipment makers Landis suggested are strategically positioned to
power this trend include KLA-Tencor (NASDAQ:KLAC), Applied Materials (NASDAQ:AMAT), Lam Research (NASDAQ:LRCX) and Cymer (NASDAQ:CYMI). Chip design companies are led by Avant! (NASDAQ:AVNT) and Cadence Design (NYSE:CDN), he said.
"Those two industries are driving the chip industry and the chip
industry is driving everything else," Landis said. "This is a
relatively safe area to bet on over the long term because everything
is going to better, faster, smaller, cheaper. Nothing is going to
change that."
The second trend, or wave, is broadband to the home, Landis said.
"Broadband to the home is coming and if you can identify the companies that are going to be the most successful in providing that to people, those companies are going to win big," Landis said.
Included in the growth of broadband is the necessity, according
to Landis, to greatly increase the bandwidth backbone. "There's a lot
of traffic that is going to go on the Internet that will make today's
bandwidth look just tiny," Landis said. Companies positioned to grow
substantially in this area, he said, include PMC Sierra (NASDAQ:PMCS), Advanced Fibre (NASDAQ:AFCC), Level One (NASDAQ:LEVL) and Vitesse Semiconductor (NASDAQ:VTSS).
Landis said it is far safer for investors to invest in the growth
of Internet traffic by buying stocks of companies that build capacity
and make data move more quickly than to guess which Internet provider or search engine company will prevail as leaders.
"I don't know if it'll be Yahoo (NASDAQ:YHOO) Infoseek
(NASDAQ:SEEK) or America Online (NYSE: AOL) that will win over time, but it doesn't matter to me. Why bet on an individual internet company when you can just bet on internet traffic," Landis said. "We're betting on the right chip companies that are going to win because the internet traffic is expanding. I sleep much better at night betting on Internet traffic than on any one internet company."
Landis said the third exciting area of investment opportunity is
international wireless. The Asian financial crisis prompted
cancellation of large orders for wireless systems from Korea, Thailand
and Indonesia. But, Landis added, these orders will eventually be
filled. "When you consider half of the world's population has never
made a phone call, it's inevitable that wireless is going to grow."
Companies Landis cited as favorably positioned over the long term
to benefit from international wireless growth include large companies
Ericsson (NASDAQ:ERICY) and Lucent (NYSE:LU), and smaller companies Celeritek (NASDAQ:CLTK), P-COM (NASDAQ:PCMS), Anadigics (NASDAQ:ANAD), RF Micro Devices (NASDAQ:RFMD), Alpha Industries (AMEX:AHA) and PowerWave Technologies (NASDAQ:PWAV).
Highlights of the company presentations included:
CKS Group -- Increase its focus on major accounts to improve
profitability. Continue to build its Internet marketing
capabilities.
- Coherent -- Use laser technologies to expand opportunities into
semiconductor chip making and DUV (Deep Ultraviolet Light)
offerings.
- QualMark -- Expand laboratory testing reach and manage growth.
- VISX -- Expand leadership position in laser vision correction
market.
- Sanmina -- Growth continuing via strong backplane business in
telecomm industry.
- CardioGenesis -- Catheter-based devices for TMR (transmyocardial
revascularization) moving through clinical trials in Europe and
U.S.
Since 1993, Sacramento-based Informed Investors has been linking
investors with management of public companies with particular strength in technology and biotechnology. Informed Investors represents individual investors who collectively hold an estimated $2 billion in investable assets.
CONTACT:
Informed Investors
Carol Short, Sean Finnigan,
or Steve Chanecka, 916/448-8222 or 800/992-4683
KEYWORD: CALIFORNIA
BW0354 APR 27,1998
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