Valley's fastest growers struggle

What a difference a year makes in Silicon Valley. Seemingly invincible a year

ago with companies like Cisco worth more than $500 billion, the valley is

struggling. Just consider the performance of the 50 companies that had the

highest sales growth during the 12-month period ending June 30:

• The 50 fastest growing companies in the valley had sales of $10 billion in
  
  the past four quarters. But they lost a combined $28 billion.
• Only three of the 50 fastest growing companies were profitable.
• Stocks of all but one of the 50 have plunged this year with a majority
  
  losing 80 per cent or more of their value.

Typical of what has been happening to so many companies in the valley is

chipmaker Transmeta. In gross sales, Transmeta grew the fastest of any company

in Silicon Valley. During the 12-month period that ended June 29, Transmeta'

sales of $44 million were up 30-fold from the preceding year.

Transmeta, which makes the Crusoe chip, looked like a gold mine for its

investors with a market value reaching a whopping $17 billion in November 2000.

Today, after suffering a series of disappointing quarters, The company's

stock has plunged from $50 to $1.60 and its market value is down to $200

million.

Transmeta has been a disaster for its initial backers, who included Sony,

Compaq Computer, America Online and Microsoft co-founder Paul Allen who bought

into Transmeta at between $6 and $10. America Online has lost $14.28 million on

its $17 million investment.

For much of the past 40 years, Silicon Valley has been a venture capital

dream world. This past year that has turned into a nightmare. The only venture

capitalists who made any kind of money this past year were those that cashed in

their chips back in mid-to-late 2000.

Cisco too, has caused its once elated investors tremendous agony. The company

has lost more than $300 billion in market value. Its stock has plunged from $80

to just $12.

Still many remain optimistic that the Valley will regain its reputation as

one of the best places to invest money. There are hundreds of companies

currently planning to go to market with new products and services. Unlike the

1999-2000 market in which it was fashionable to take companies public before

they even had a product, the new crop of firms will have more time to establish

a track record of sales and prove the vitality of the new markets they intend to

create. "If you're an investor, now's the opportunity,'' says Bruce

Lupatkin, fund manager for North Bay Technology Partners, a technology hedge

fund in Novato.

Several of the Valley's up-and coming high-tech companies are expected to

show strong sales growth and profitability in the years to come. They include:

* VeriSign in Mountain View verifies the identity and credit cards of

people and companies buying products online. When it bought Network

Solutions, VeriSign gained a virtual government-sanctioned monopoly on the

three Internet domain-name suffixes: .com, .net and .org. For each address

using those suffixes, VeriSign gets $6 a year -- more if it provides other

services. VeriSign lost $15 billion in the last four quarters, mostly related

to the purchase of Network Solutions. It has nearly $800 million in cash and

short-term investments on hand to move forward.

* Juniper Networks Networks remains a leading supplier of high-end core

routers, the equipment that directs data through the heart of large

communications networks. It continues to gain market share from Cisco

Systems. The firm is profitable and has $1 billion in cash.

* NetIQ: Based in San Jose, NetIQ makes software that manages corporate

computer networks.