Humbled tech industry bids good riddance to 2001

Andrea Orr

SCOTTSDALE, Ariz.: A lot has changed since the last time the biggest names in

high-tech gathered at the annual Credit Suisse First Boston conference in the

Arizona desert to sell investors on their stories. Companies that a year ago

were forecasting a quick turnaround are now offering the more qualified view

that things probably can't get much worse.

After a year-long descent in which many bellwether companies like Intel Corp.

had to lower financial guidance, the same companies said they are confident that

they will make their fourth quarter earnings and sales projections. For some

investors, that has the ring of good news.

"It seems that things are getting less bad," said one fund manager

from Kansas City attending the week-long conference. "Investors are just

looking for an inflection point to get back into the market and when a company

says things won't be quite as bad as the last quarter, that seems to be

enough."

The hint of an end to the downward spiral has provided the industry some

comfort at the same time that the Nasdaq extends a 10-week rally that has taken

the market up by 39 per cent since Sept. 21.

When Tom Siebel, chief executive of software giant Siebel Systems Inc.

addressed the group on Thursday, he echoed the cautious, but relieved tone, most

companies have adopted. "The market is beginning to look normal," he

said. "It is normal at a much lower level than a year ago, but at least it

is not this gut-wrenching dynamic downslide that we saw in the second and third

quarters."

Intel kicked off the conference on Tuesday by restating its goals for fourth

quarter revenues. Its confidence helped to move the whole market higher -- even

though Intel's forecast, like those of virtually all high-tech companies, calls

for sales being well below year-ago levels.

Standing room for Bezos

A running theme for computer and hardware makers was how lean and mean they

have become after shutting plants, and taking thousands of excess workers off

the payrolls. In another sign of the times, Jeff Bezos, the celebrity chief

executive of Amazon.com, Inc. addressed a room that was barely half full, a far

cry from the standing-room-only crowds he drew in the past.

Not a single analyst in the audience asked Bezos when Amazon would report a

net profit, once an urgent question that is taken less seriously the further the

target is delayed. While a few companies predicted a turnaround by next summer,

most were only willing to call a recovery sometime in 2002. Intel's chief

financial officer Andy Bryant noted that "the list of negatives still

exceeds the list of positives."

Leif Soderberg, Motorola, Inc.'s general manager of strategic business

development, spoke of long-term growth prospects but stressed, "that is not

to say we don't have a long way to go."

Fiber optic equipment maker JDS Uniphase Corp. had even less to say about its

expectations, only noting that after slashing its staff from 28,000 a year ago

to around 13,000 today, it had become more efficient. Many companies from

personal computer makers to computer chip manufacturers seem to be relying on

budget cuts rather than any burst in business to support earnings.

Test and measurement equipment maker Agilent Technologies, Inc. said it had

lopped some $1.2 billion in costs out of its annual budget, even as it continues

to invest in research and development to spur new product innovation. Like

Agilent, virtually all the companies presenting at the conference have offered

stories of how the tough times have left them more fit to ride the recovery,

whenever it comes.

Dancing Wintels

"We're very excited about the success we've had in building our market

position during this downturn," said Steve Newberry, chief operating

officer of LAM Research Corp., which makes equipment for manufacturing computer

chips and says it has taken market share from industry leader Applied Materials

Inc.

Similarly, Bob Pittman, co-chief operating officer of AOL Time Warner, Inc.

said the slump made it easier to justify cutting jobs and other costs needed to

build an integrated organization following the merger of AOL and Time Warner.

A large concern for investors remains how much future growth can reasonably

be expected in the overall computer market, or the mobile phone or software

markets, which were all spoiled by explosive growth during much of the last

decade.

That question came up during a question session with Dell Computer Corp. when

one investor asked Dell chief executive Michael Dell about the "diminished

returns of the dancing Wintel technology."

It was a reference to the machines running on Intel chips and Microsoft

Corp's Windows software, which have regularly added new features and additional

storage, while getting much faster. The fear is that existing machines may be so

capable that consumers will see less need to upgrade in the future. Michael Dell

acknowledged that there could be some "lengthening in replacement

cycles" for personal computers although he said he did not see a major

extension.

Several other companies noted that most consumers still did not have

high-speed or broadband Internet access, and that the adoption of faster online

connections would spur demand for faster computers. But even AOL Time Warner,

which is confident that most homes will some day be broadband-enabled, cautioned

that the change could come slowly.

"Nothing happens quickly," said AOL's Pittman. "People had

outrageous expectations, but the laws of consumer behavior were not suspended by

the Internet."

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