Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Giraffe who wrote (25402)	1/5/1999 4:10:00 PM
From: Alex	Respond to of 116958

Fearless Forecasts for 1999 by Peter Martin Many of 1998's best-performing internet stocks will end the year worthless. This is likely to happen even if the overall stock market has a healthy year. It's built into the way these market valuations are achieved. Putting money into businesses which seek to create and dominate new areas of economic activity is not like conventional investment. Either the company will be astonishingly successful - a low but not negligible probability - or it will be largely worthless. It is almost impossible to tell in advance which of these outcomes will apply. For any individual internet stock, an astronomical valuation is not absurd if you are prepared to make the leap of faith. For internet stocks as a group, however, the collective valuation is clearly nonsense, since only one competitor in each market segment can achieve the dominance on which all are being valued. This is the year that reasoning will sink in. At least one of 1998's big mergers will succumb to management crisis. The most obvious threat is cultural differences where the merging companies come from widely different national backgrounds. DaimlerChrysler, Hoechst/ Rhône Poulenc, Astra/ Zeneca, and the coming European Aerospace and Defence company all fall into this category. Expect at least one of them to have some bumpy patches in 1999. But cultural differences are sometimes just as acute within national boundaries, especially where they overlap with struggles for power. Just because the former chief executives have agreed to share roles does not mean they have really adjusted to sharing power. The struggle is most acute where the roles have not been precisely defined in advance. Notoriously, the Citigroup merger leaves this giant financial institution with a co-chairmen and chief executives. It will be surprising if that cosy agreement lasts its full term. This is the year Microsoft will look vulnerable for the first time. Not because of the justice department's antitrust lawsuit, which will leave the company's image battered but its business largely unaffected. Nor because of short-term operating issues - the next release of the Microsoft Office suite of programs, due out in the spring, will yield the company another huge surge of revenue. But because the computer landscape is changing in ways that Microsoft cannot control. As corporate computer departments emerge from their Year 2000 planning blight, the future they are thinking about will include new types of information appliance, big and small, and new rivals to Microsoft omnipresence. These include the Palm operating system from 3Com, the Symbian joint venture from Psion, Ericsson, Nokia and Motorola, the Linux "freeware" version of Unix, Oracle and Sun's alliance in database server systems, America Online's tightening grasp on the consumer internet market and so on. Each of these is a narrow threat, and some are obscure. But together, they chisel away at the assumption that the future is Microsoft's to shape. The lawsuit - by showing Bill Gates in an unflattering light - underscores this shift in attitudes, and thus paradoxically makes the legal outcome less important. The typical manufacturing company will end the year with lower unit revenues than it began. It will be the first year of across-the-board deflation for the developed world's manufacturers in living memory. The drop in prices will only be a small one, but the change in psychology will be acute, particularly in continental Europe where it will be widely - and erroneously - blamed on the coming of the euro. The most immediate consequences will be a fresh interest in cost-saving and downsizing, often in companies that have only just finished the last round of cuts, and a host of trade complaints. Suddenly, appealing to government alleging unfair foreign competition won't be a badge of shame, it will be a routine action. There will be a lot of three-way fights between the US, Europe and east Asia. But the more far-sighted companies will emulate General Electric, and seek to wrap a cosy blanket of services around manufactured goods to protect them against the market chill. Expect the GE buzzword "product services", which describes these engineering-related activities, to enter common use. Korea's big companies will make an astonishing recovery. That is, they will achieve remarkable results at the operating level, intensifying the pricing pressure mentioned earlier. At the financial, political and family level, however, they will still be struggling at year-end, unable to reconcile the interests of their stakeholders. It will eventually become clear that Korean stocks were, at some point, one of the world's great buying opportunities. But by the time that moment arrives, it will already be too late to participate. The iron law of hindsight will apply with its customary merciless efficiency. Whatever else it may bring by way of excitement, 1999 will in this respect be no different from any previous year. Contact Peter Martin: peter.martin@FT.com The Financial Times, Jan. 5, 1999