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Tech world's sorrow shrivels work for bankers

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CIOL Bureau
New Update

Jeffrey Goldfarb

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MENLO PARK: The easy, gridlock-free drive from San Francisco to Menlo Park

these days is perhaps the most emblematic sign of the times in this high-tech

mecca.

Technology visionaries used to inch impatiently in traffic on southbound

Interstate 280 for the 35 miles toward Menlo's gold-paved Sand Hill Road, where

venture capital firms financed their dreams and investment banks took them

public and shopped their companies to eager buyers.

Today, though, the brown, sun-scorched grass along the highway symbolizes

just how much things have dried up.

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The brown placards that festoon marquees of low-rise commercial complexes on

Sand Hill -- once riddled with the bland names of investment firms that

inevitably incorporated the word "Capital" -- are increasingly blank.

"Space for lease" signs instead blight the three-mile strip.

Silicon Valley's high-powered deal makers have seen a staggering drop in

business. Just a short three years ago, investment bankers with technology

expertise frantically were rushing initial public offerings to market and

forcing lucrative, but often ill-conceived, mergers. Now, they just try to help

clients survive.

"We're grief workers now instead of empire builders," lamented one

tech banker, who requested anonymity to keep from alienating companies he

advises and other potential clients. The statistics are support the anecdotal

tales of woe. Investment banks advised on just 81 technology deals worth about

$7.8 billion in first quarter 2002 compared with 146 deals worth about $94.7

billion in first quarter 1999, according to market research firm Thomson

Financial.

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Dismal earnings and a hazy outlook on Corporate America's technology spending

plans have left chief executives wary of what acquisitions could do to their

already shaky stocks. "M&A is out of favor with investors," said

another California-based investment banker. "The market hates it."

New agenda



Instead of juggling four or five deals at a time as they did just a few
years ago, merger advises instead spend their time coddling clients, or

"building relationships," as many of them call it. By staying in close

contact with companies, bankers hope to better shape and understand their

clients' business models and long-term plans. That way, when confidence returns,

they will have gained trust and proven themselves to CEOs.

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That has been tough to do, though, as Wall Street firms have slashed their

banker ranks, either by cutting jobs or by reshuffling the sectors in which they

work. Turnover can hurt their chances to retain business. "I had one client

tell me we were hired because we were the only ones pitching business with the

same folks who went in two years ago," one banker said.

Specialized banks, such as Robertson Stephens and Broadview International,

that once catered to tech start-ups, have been hit hard, too, as their larger

rivals have swooped in to handle the small deals they previously would have

ignored. Both banks have held talks with potential buyers.

"I haven't seen a Robbie Stephens banker at a deal in 18 months,"

one banker said. The few deals struck take far longer to get approval as

directors scrutinize financials and management looks around every corner for any

signs of instability. Bankers say conference calls that took an hour now take

five hours and deals that took six weeks to close now take four months.

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Many executives finally have accepted that their stocks will trade for about

$5 a share, not $100, and are entertaining offers, bankers report. However,

buyers are still waiting for some hint of a turnaround in profits or tech

spending to even consider acquiring a rival.

"I have a hard time recommending to a lot of people that they buy

something," one investment banker confessed.

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Grim reality



The 200 biggest public companies in the San Francisco area, most of which are
technology firms, lost a combined $77.7 billion last year, a stunning reversal

from the combined $116.2 billion profit they booked the previous year, the San

Francisco Chronicle reported last week.

The profound impact of those numbers stamped on their faces, sadsack

investors moped around one of the industry's biggest and oldest conferences last

week. Attendance at the 30th annual JP Morgan H&Q technology conference

plummeted 23 percent from its peak last year to 3,260 people, the lowest figure

since 1994 -- before the world discovered the Internet.

"This is some of the worst sentiment I've ever seen," said Gary

Nackerson of Firelake Research. "In a lot of ways, it's even worse than

last September." Question-and-answer sessions between investors and

corporate management were testy.

Nackerson and others complained that executives focused their paltry upbeat

comments on tiny industry segments and avoided discussing the critical broader

markets. During the past two years of the bear market, companies and investors

have tried to maintain a smiling face and remain confident that the future would

be bright. But now, a deep sense of melancholy and nostalgia have set in.

In a standing-room-only presentation by outgoing Sun Microsystems Inc.

President Ed Zander, the microphone failed, the air-conditioning shut down and

waiters, in an effort to finish promptly, whisked away the cookies and other

afternoon treats. "No air, no food, no fun," Zander muttered.

"Remember the good old days?"

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