Thread,
Here's a bit of pleasant reading for the longs,
thestreet.com
Look for a capital spending boom in April, based on the finish of Y2K testing in February.
Andy Kessler: New Year's Revelations, Part 1
By Andy Kessler
Special to TheStreet.com
12/22/98 1:51 PM ET
I'm not one to believe in New Year's resolutions. Frankly, I forget them by the time the Fiesta Bowl is over. But the new year always brings its revelations.
Here is the first half of a list of 10 of them, some more out of the box than others. Each is intended to help frame the technology investments you have now or will have in 1999.
A capital-spending boom will start in April after Y2K testing concludes in February.
That's right, you read that correctly. The Y2K problem ends in February 1999. Well, it doesn't end, but most corporate testing of systems for Y2K compliance ends in February. I have heard this now from several sources. There could still be problems that need to be solved, but most of the heavy lifting will be completed.
The good news is that new projects and new purchases that had been postponed until the completion of Y2K testing can now be unleashed. That is why I think you will see a capital-spending boom beginning in April. Most of the spending will be in Web-enabling systems and software, but my guess is that it will be bigger than anyone thinks. This includes servers, routers, switches, caching software, network equipment for load balancing, enterprise software, self-service software, application server software and video editing and delivery systems.
The consensus on the Street is that this capital-spending boom won't start until April 2000 or April 2001. Look for it at least 12 months sooner.
A rip-roaring semiconductor cycle will ensue.
Shortages of DRAMs are already starting, and I think we will see this expand to many other segments, including programmable logic and analog products. Part of this is based on the coming capital-spending cycle mentioned above, and part based on the huge inventory reduction that took place from April through October 1998. No one ordered parts until October, and then only to populate boards or systems that needed to ship. Order lead times will stretch, prices will go up and semiconductor stocks will double and triple. It happens every time.
The .com stocks will roll over by March, despite the discovery that shopping is elastic.
It turns out that shopping is elastic, with the elasticity coming not from pricing but from convenience. As Wal-Mart (WMT:NYSE) and Price Club (COST:Nasdaq) discovered in the '80s and early '90s, if you make shopping more convenient, people will buy more.
Now the Web has added the ultimate in convenience (but not yet great prices), and lo and behold, people buy more, even stuff they don't really need. Admit you bought something you didn't need on the Web just to see if it really worked. I am still explaining to my wife the Jimi Hendrix greatest hits album, the Motorola (MOT:NYSE) radios with five-mile range, the 1,700 Dirty Limericks book and the case of '86 Bordeaux.
However, the .com stocks are gonna roll over. This is based on many factors (and I won't even count valuation), not the least of which is that first-quarter revenue will be decline. Retailing is seasonal, and the Web hasn't been, so far. Investors are expecting growth -- and seasonality will be a bit of a shock.
Add to this three more factors:
The novelty of Web buying having worn off.
An oversupply of stocks from the IPO boomlet I expect between Jan. 4 and March 31, which will saturate investors' appetite.
As mentioned above, a capital-spending boom returning attention to companies with growth and earnings.
The Street will realize voice is in.
An increasing number of call centers and help desks will include interactive voice response and voice recognition. Add to that Web-enabled voice services, like Portico and Webley. While these are specialized services creating a personal information manager in the sky, new vertical applications for voice response and voice recognition will take hold, increasing the total available market for Web services from just those with a PC to those with phones as well.
Scalability will win out as the ultimate differentiator.
The PC went from zero to 100 million units sold over the last 20 years despite being an incomplete product that requires a huge infrastructure -- including both a value-added reseller channel and tons of tech support inside corporations -- to implement real functionality and perhaps even productivity.
In other words, it really wasn't scalable, but because of its continual compatibility (even back to the first PC), a support infrastucture scaled around it. Well, those days are over. From now on, new applications and new services must be rolled out without support. Amazon (AMZN:Nasdaq) is a good first example. No real handholding was required to get customers to execute transactions. Instead, a scalable infrastructure of servers and routers and caches and load balances that is still being augmented helped Amazon go from zero to 5 million customers in record time. Look for things that scale in '99, not things that are backward-compatible to the first PC.
Look for more revelations tomorrow.
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