Forum Archive Index - December 2000

["Terisa Frost" <terisa@stanfordjames.co.nz>]

Hi there,

Please email this direct to Sheldon sheldon@stanfordjames.co.nz and note
that anything that comes into my email for it will not be forwarded to him.
Thanks.

----- Original Message -----
From: Ben Dutton <bendutton@sharechat.co.nz>
To: <sharechat@sharechat.co.nz>
Sent: Friday, December 01, 2000 7:20 AM
Subject: [sharechat] US Markets/Interesting Article


> As I write the Nasdaq is down 6% and the Dow is down 2% - it's definitly
not
> a good day on the US markets - lets hope that the NZSE can continue to
> resist (on the whole) following Wall Street's drops...
>
> This article showed up in my inbox this morning from the ever reliable Red
> Herring magazine - check it out - it certainly makes for an interesting
> read.
>
> Best Regards
>
> Benjamin Dutton
>
>
> PERSONAL CAPITAL: PERSONAL CAPITAL: Capital at risk
>
> It's not a pleasant time in the market... or is it?
>
> If you're looking to turn a quick buck as a day-trader, it's
> a terrible time in the market (unless you're adept at
> selling stocks short). But for a real, long-term technology
> investor, things are getting interesting.
>
> Remember back in the early 1990s, when not every investor
> was a technology investor? Back then you could pick up Cisco
> Systems (Nasdaq: CSCO) with a price-to-earnings ratio of 30.
> Well, it would be nice to see such values again -- and the
> more the bubble deflates, the closer we get.
>
> This year's massive, painful, and volatile correction in
> many young technology companies is a by-product of Wall
> Street's rush to take companies public. The massive assembly
> line of IPOs churned out over the last two years flooded the
> market with young, inexperienced, and unprofitable
> companies, and a lot of inexperienced investors gobbled them
> up. Many of these companies were completely incompetent or
> had terrible business models. Others were simply not ready
> for the public markets.
>
> This column was started on the premise that the market was
> turning into a risky public venture market. That type of
> environment demands a closer, more analytical look at
> specific vertical technology fields. As clumps of technology
> companies in specific markets go public earlier in their
> life cycle, investing gets more risky, but the potential for
> huge returns is also still there.
>
> THE PUBLIC VC MARKET
> Years ago, an emerging market would have dozens of players
> funded by the venture community. These companies would fight
> tooth and nail for market share and profitability -- in the
> private market. Then, after several years of creative
> destruction in the market, Wall Street would consider taking
> them public.
>
> In the last two years, we saw an elimination of the later
> stages of the IPO process. Wall Street stripped out the
> requirement for profitability -- or in many cases, even the
> requirement for revenue -- and took the companies straight
> to the market. You had dozens of companies going public in
> the same market, with no prior weeding out in the private
> market.
>
> In my mind, this all culminated in July of this year, when
> Corvis (Nasdaq: CORV), a promising optical networking
> technology company founded by former Ciena (Nasdaq: CIEN)
> founder David Huber, went public without any revenues and
> certainly no promises of profit on the near horizon. The IPO
> was really a $1 billion venture capital round, funded out of
> the wallets of public investors, at a valuation that would
> make any real venture capitalist cringe. Wall Street quickly
> bid Corvis up to a $37 billion market cap within a week.
>
> Corvis's market cap is now $9 billion, as the stock has
> fallen more than 75 percent in just four months. This IPO,
> more than any others, is a symbol of the extremes tested by
> Wall Street. After the recent correction, the market has
> become more selective. Will we return to only taking
> profitable companies public? Probably not. But reckless and
> greedy IPOs with irrational valuations have been put on
> hold.
>
> In the venture market, risky and turbulent company life
> cycles are the norm -- a company, as it evolves, goes
> through fits and starts, customer wins and losses, and an
> evolution in management and culture. If the companies blow
> up, or need help, the VCs and other investors become
> involved. But such investors are accustomed to large amounts
> of risk, and they build portfolios that are hedged against
> such risk with a "one in ten" philosophy of funding enough
> companies to hit at least one grand slam out of every ten
> investments. The average investor cannot afford to assume
> that much risk.
>
> ------------------------------------------------------------
>                A D V E R T I S E M E N T
>
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> find more extensive business and financial news on the web
> than by signing up for Individual.com, the personalized FREE
> service that lets YOU choose what's news.
> Register at Individual.com now!
>
>
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> gistration?mc=%m&plcmt=DC-%esid!-%epid!&adcode=%eaid!
>
>               A D V E R T I S E M E N T
> ------------------------------------------------------------
>
> WHAT NOW?
> In the first leg of the correction in April, we adjusted our
> attitude toward this new wild-west public market with the
> new new rules. One of the rules was that an unprofitable
> company (and certainly one without revenues) should never be
> valued over $10 billion. Another was that if an investor is
> not able to diversify the portfolio and play several
> companies in the same technology spaces, you're better off
> sticking with bonds or mutual funds.
>
> What you have seen in the market this year is the negative
> aspect of that risk -- young, fast-growing but inexperienced
> companies can collapse back to earth just as fast as they
> sailed into orbit -- all it takes is one sticky quarter.
> Take Cacheflow (Nasdaq: CFLO), one of the companies I've
> written about, as a recent example. Its quarter was deemed a
> disappointment. A rocket ship up, and a lead balloon down.
> Surprising? Not really. Painful? Sometimes. But necessary
> for the evolution of emerging markets. The company still has
> the same potential, but Wall Street's hacked it down for its
> short-term bobble.
>
> So, what now? Largely, what we are seeing now is an across-
> the-board valuation reality check. When Wall Street gets
> gloomy, it dwells on risk and becomes increasingly
> pessimistic. Remember that the market is very shortsighted.
> You should keep your eye on a two- to three-year time frame.
>
> Can the Nasdaq go to 2000? Possibly. Will it go to zero?
> Definitely not. The market should begin the healing process
> by the first quarter of next year. Of course, it would help
> the process along if the country avoided a civil war and
> picked a new president. And history says that the
> probability of the Nasdaq rising to new highs within the
> next five years is extremely high, barring a complete
> collapse of the U.S. economy.
>
> FOLLOW THE LEADER
> Many of the companies closely followed by Personal Capital
> were picked because they were emerging as leaders in
> developing technology markets, and they were also leading
> hot trends. For example, BEA Systems (Nasdaq: BEAS) was
> gaining momentum in the componentized Web application space.
> Companies such as Extreme Networks (Nasdaq: EXTR), Sycamore
> Networks (Nasdaq: SCMR), Ciena, Juniper Networks (Nasdaq:
> JNPR), and Redback Networks (Nasdaq: RBAK) are leading the
> charge in next-generation networking gear.
>
> JDS Uniphase (Nasdaq: JDSU) and SDL (Nasdaq: SDLI) are
> gorillas in the optic components space, and their valuations
> are finally reaching attractive proportions. Micromuse
> (Nasdaq: MUSE) maintains its lead in the field of
> telecommunications network management.
>
> Another sector to watch is communications chip makers. Many
> of these companies, such as Xilinx (Nasdaq: XLNX) and
> Broadcom (Nasdaq: BRCM), were the first to get slaughtered
> in the correction, and they are thus likely to be the first
> to recover. Xilinx, which has seen its profits grow at a
> rate in excess of 80 percent and is now trading at a P/E
> ratio of 21, looks downright cheap.
>
> With the IPO pipeline shutting down, these companies I
> mentioned, most of which are already profitable, will get
> stronger as the upstarts will need more time to raise
> capital and catch up. That's why we should now get back to
> the basics of technology investing, and look for the
> profitable leaders in the public space to extend their
> leads.
>
> RECENT LIGHT READING NEWS STORIES
>
> * Patent points to Corvis secrets
>   http://www.lightreading.com/document.asp?doc_id=1586
>
> * Cyras: what, us worry?
>   http://www.lightreading.com/document.asp?doc_id=1616
>
> * Ciena spooks the market
>   http://www.lightreading.com/document.asp?doc_id=1603
>
>
> - R. Scott Raynovich
>   rayno@lightreading.com
>
> * R. Scott Raynovich, former investment editor of
> Redherring.com, is executive editor of Light Reading
> (http://www.lightreading.com), a global site for optical
> networking. He has covered technology markets for more than
> seven years. *
>
> ------------------------------------------------------------
>
> RELATED LINKS
> * Personal Capital: The new new rules.
>   http://www.redherring.com/investor/2000/0406/inv-pc040600.html
>
> * What's Corvis's secret?
> http://www.redherring.com/investor/2000/0810/inv-pc081000.html
>
> * Fish or Cut Bait: Fiber-optic frenzy.
>   http://www.redherring.com/investor/2000/0731/inv-focb073100.html
>
> * Previous Personal Capital: Get ready for broadband.
>   http://www.redherring.com/investor/2000/1116/inv-pc111600.html
>
> ------------------------------------------------------------
>
> Discuss today's column in the Personal Capital column discussion:
> http://boards.redherring.com/WebX?13@^2342@.ee6c58e
>
> or check out forums, video, and events at the Discussions
> home page:
> http://www.redherring.com/discussions/
>
> ------------------------------------------------------------
>
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>
> ------------------------------------------------------------
>
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>
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> ------------------------------------------------------------
>
>
>
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