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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (561)	2/27/1999 4:53:00 PM
From: Bahama	Read Replies (1) \| Respond to of 54805

Gorillas by Sector: I took a bit of "artistic license," but for the most part this is directly from the book. At the highest level they subdivide technology into 4 mega-sectors: Vertical market systems, Semiconductors, Services, and Computer systems. The first 2 are discussed in this post: VERTICAL MARKET SYSTEMS are technology offerings devoted to a single market, such as: Medical equipment for health care, where companies such as Hewlett-Packard and General Electric have major operations. Exploration and production systems for oil and gas, led by Halliburton, Schlumberger, and others. Computer hardware and avionics software for aerospace and defense, the focus of well-known companies such as LockheedMartin and Rockwell. Switches and cellular base stations for telephony, where Lucent and Northern Telecom represent North America's strongest entrants. Fabrication equipment for the semiconductor industry, where Applied Materials and Lam Research are leaders. Vertical technology markets like these generate huge spending, and all of the companies named have multi-billion-dollar positions in them. But the markets operate apart from the market for computer systems in general, behaving instead like "bowling alley forever" markets. That is, they tend to crown their own local gorillas, demand highly specialized responses from them, and build long-term relationships that pose high barriers to entry for new competitors. The bad news from a gorilla game point of view is that it is much harder for a new gorilla to break into this club, since new technologies are generated by the existing hierarchy of vendors. Thus the primary gorilla candidates are the existing players. There is an upper limit to their expansion, set by the limits of the vertical market. There are no mass markets for any of these devices, nor is there ever likely to be. As a result, vertical market vendors can take money from each other, or cannibalize their own contracts, but they have a much harder time creating new money. It is still possible to have local tornadoes, of course. As a rule, however, they are harder to see, particularly for an outside investor, and in any event they will not scale beyond the limits of the local market. Hence, our recommendation to gorilla-game investors is, do not play the gorilla game here unless you happen to be employed in one of these markets or are willing to do the extra homework necessary to navigate your way. SEMICONDUCTORS The semiconductor industry provides the basis for the recurring tornadoes in all the rest of the high-tech sector due to continuing advances in semiconductor processes and density. This generates economies of scale which allows companies to drive down the price point well below where it was just 18 months prior. The semiconductor industry subdivides into some readily understandable categories. Microprocessors and memories, in particular, are both familiar to any PC user. DSP (digital signal processing) chips, analog and mixed-signal devices, graphics accelerators, and ASICs (application-specific integrated circuits) are other categories. Overall, it is a highly specialized field and not readily handled in a book intended for wider audiences. It is also not our normal stomping grounds. Therefore, we have also put this sector outside the limits of our target terrain. We want to be clear, however, that this IS a gorilla habitat nonetheless. The semiconductor industry does operate by the rules and principles of the gorilla game. There are numerous proprietary architectures, and there are high switching costs once a value chain commits to one or another, so this marketplace has and will continue to generate a strong complement of gorillas in addition to a lot of kings and princes. To play the game in the semiconductor sector demands a highly specialized investor with highly specialized information. Once again, if you have occasion to be such an investor, we wish you good hunting. ------------ The terms CAP, bowling-alley, and tornado need to be defined yet. You can get an idea of the meaning from the context, but it could be clearer. Anyone else care to take a stab at it? Frank? To buy the book: www1.clbooks.com

To: Uncle Frank who wrote (561)	2/27/1999 5:49:00 PM
From: Mike Buckley	Respond to of 54805

OT Frank, I'm glad to know you had such a great experience meeting your cyberfriends face to face. I've probably met 50 acquaintances due to my past association with the Motley Fool. Having Fool HQ about 20 minutes from my home made meeting people very convenient. I've spent a good amount of time with a few people I've met online and it has always been a very rewarding experience. --Mike Buckley

To: Uncle Frank who wrote (561)	2/27/1999 6:34:00 PM
From: Mike Buckley	Respond to of 54805

I was e-mailed some thoughts and questions about Oracle and the front office software space. Others might want to address these issues. I read the other day that ORCL is buying a front office vendor. Can't remember the name. I'd have to go through my notes, but I don't remember seeing that. There has been the thought for awhile that Oracle would be a likely acquirer of Clarify when it was down and before it started its recent comeback. The thought now is that Vantive, having its current problems, might be a likely acquisition candidate for Oracle. I've never seen anything about either likelihood that is beyond sheer speculation. I always felt the next opportunity for ORCL was to extend into applications the way MSFT has. Yet there seems to be massive skepticism about their ability to execute. One huge difference between Oracle and MSFT extending into the applications market is that MSFT was able to leverage its strength by building their apps around their own operating system. Oracle doesn't have that advantage. To digress a bit, think about that in the context of SAP. SAP is the gorilla of the ERP space. If they are able to sufficiently develop their R/3 as a platform, SAP's R/3 will be to their enterprise apps what Microsoft's Windows is to the personal apps (spreadsheets, word processing, etc.). That would give SAP a distinct advantage in the apps space that I don't think Oracle will ever have, lacking such a platform. You are probably aware that Oracle already is in the applications market, though I'm not familiar with the details. Thomas Siebel, a former Oracle sales exec who LOVES to trash Oracle, gets a kick out of mentioning that he expects Siebel System's revenue to surpass Oracle's application revenue in the next one or two quarters. That offers some perspective about the size, might and growth of Oracle's applications division. Certainly the skepticism about Oracle's ability to execute isn't without merit. They really stumbled big-time in the last couple of years but remain the gorilla of the database market. (That's a testament to the inherent strengths of a gorilla despite management's intermittent failures over time.) A lot of people think their CEO should spend more time concentrating on their core competency and ways to leverage it instead of being the loudspeaker for the network computer market and the head cheerleader for the anti-Gates folks. There is a huge issue about Oracle's or any ERP vendor's success in moving heavily into the front office space. Customers have to choose that it is better to give up best of breed functionality from the front office specialists so they can have the relative ease of their ERP's front office apps built around the ERP vendor's architecture. Alternatively, those customers might instead decide that it is indeed worth it to use middleware to "connect" the best of breed apps from the front office specialists with their ERP vendor's back office functions. For a great article that explains that better and quicker than I could possibly do, click on techweb.com My hunch is that there will be plenty of front office business for the specialists and the ERP vendors. And there's no reason we can't devote a position of a leading ERP stock and a leading front office stock in our portfolios so we don't have to worry about who, if anyone, dominates. Hope this helps. Comments are encouraged. --Mike Buckley