Zeev's Turnips Patch-No Politics (ZEEV)

[TJ Parker]

rare fred hickey tv sighting (fortune).


Technology panel

GIBBS: Well, David, What's your take on Oracle and Larry Ellison?

DAVID KIRKPATRICK: Larry Ellison is very a willful person who knows what he knows, and is absolutely convinced that he is right, and that has many, many times put Oracle in an extremely advanced position that's allowed them to win and to dominate the database business, which is a great business. he's in a business that really is mature and he needs to grow the company. I think he's nervous about that, that's why he's trying to buy Peoplesoft, and I think he's nervous if that might not succeed.

GIBBS: Fred, do you think Larry Ellison is a little nervous?

FRED HICKEY: There's no question that he's nervous. The applications business within Oracle has not done well for several years now. The database business is mature, and he's competing on price oftentimes against Microsoft and IBM. So the company is stalled out and he's making an attempt to grab at a company with a very good reputation within the software world. The problem is, is that software acquisitions have had a history of failing. In fact, computer industry acquisitions have a history of failing. 'edit) So, the prospects aren't particularly good, and it smacks of desperation.

GIBBS: Kevin, what's your take on it?

KEVIN LANDIS: Parsing his opening statement there, he said one thing that I absolutely disagree with, and one thing that I completely agree with. He said, "Silicon Valley is dead." False. Totally disagree. The computer industry is maturing -- absolutely that's right, and therefore computer software is maturing, and therefore he is looking at a bigger business with a lower growth rate, and he's trying to figure out how to become the successful, profitable last man standing. So, whether you think it's going to succeed or not, it's probably a move that makes sense given Oracle's situation.

GIBBS: David, I saw you nodding when Kevin said that Silicon Valley is not dead.

KIRKPATRICK: I'm not even sure I buy the notion that the computer industry is mature, because I think saying that disregards how globally the industry is growing at the moment, and I think when someone like Larry says it's just going to be down to a few big companies -- and obviously he's thinking of himself, Microsoft, IBM, Dell, HP -- you know, that doesn't really factor in the explosive growth that we could be seeing in China, in India and elsewhere, and some companies that are already thriving in those places, like Legend in China.

GIBBS: Fred, are we just replaying 1999 all over again? Are we being led to slaughter?

HICKEY: I think we're being led to slaughter again. I think this is a continuation of the bubble years. We never had the excesses correct. We never got down to levels of valuation that we normally do in bear markets. Chairman Greenspan pumped a whole bunch of money into the system and the U.S. government has run up a hundred billion, multi-hundred billion dollar deficits in order to keep the normal, natural forces of the economy and stock market from working. Consequently, what we have is the wildest orgy in tech stock buying that I've seen since the 1999-2000 period.

Normally, in true turns, in newborn markets, you'll have a change in leadership. Right now all we see is the same leadership. They're buying the same stocks that they bought in 2000. They're buying the same Internet companies. They're buying concepts again with no sales and no earnings in often cases. A couple of weeks ago it was Nano tech stocks, a lot of stocks that I see going up, multifold, here within days, have no sales, or no earnings in many cases. So, it's a pretty scary time.

GIBBS: Well, Fred, what should they be buying then?

HICKEY: Well, with valuations as high as they are, they shouldn't be buying technology stocks. So, I'm in a protective mode. Most of my money is elsewhere, not in tech. And I wait for the moment when we're able to buy tech at reasonable valuations.

GIBBS: Well, Kevin, tech stocks are your specialty. What are you buying?

LANDIS: Right. You know, let me just say, I agree with part of what Fred said. I think that you can get led to slaughter if you chase the tape and if you just round-up the usual suspects. You go out and you buy Microsoft, Intel, Cisco, Dell, Oracle, Sun, all the names that you thought you found comfort with. And they look good right now because people are buying those stocks, and that would be the wrong move. What we're trying to do is put our shareholders money to work in companies that are growing, that are making a profit, and that are really off of most people's radar screens.

GIBBS: Such as?

LANDIS: Well, such as in digital photography, we own Lexar Media and Sanddisk. These are both removable storage companies, they make flash memory chips and flash memory cards. Now, most people, when they go out to buy a chip stock, or they go buy a memory chip stock, they buy Micron, and it's covered by a list as long as your arm of Wall Street analysts.

Hardly anybody covers these other stocks because they haven't had time to get comfortable with them, and frankly, no one's wanted to do the homework on them until just very, very recently. So, again, you go from one theme to the next, whether it's GPS being designed into your cell phone, or whether it's digital cameras being designed into your cell phone, or whether it's LEDs replacing light bulbs, you're going to find really fascinating, high growth companies that really aren't covered by a lot of the industry, and that's where you have to look. You have to do your homework and dig.

GIBBS: David, talk about for the faint of heart. Let's look at Internet companies, they led us to the slaughter in '99, the dot-coms went dot bust. But if you look at year-to-date, Internet commerce up 100 percent, over the past 52 weeks up almost 160 percent. What's happening?

KIRKPATRICK: Well, I think it's extraordinary to see how quickly these stocks have gone up. On the other hand, it's also extraordinary to see how important they are in our economy, and how rapidly they're changing in their role. Companies like Ebay and Amazon and Google, which of course isn't even public yet, they're changing the way we live on a daily basis in a mass way. It's very easy for me to understand why investors have a hard time valuing these companies.

Now, I was interested in what Fred was saying. I'd be curious to know what he thinks could cause these, this whole bubble, which he seems to see, to burst. I think that, you know, my feeling is the momentum that we're seeing now, because it's still sort of a building phase, is probably going to continue. I have to admit, it's probably not based upon financial analysis, as it really wasn't in the late '90s either, but I think you could see this kind of psychological wave continue for quite a while.

GIBBS: Fred, what do you see? What do you see and what do you look at that tells you that this is not something we should be in?

HICKEY: Well, I think that much of what we've seen is based on hope, once again, of a pickup in the second half of the year. We basically had false rallies and collapses every year since 2000. This is another one. This is a significant rally. However, it's also based, it's still based upon having the economy pick up in a major way, and that consumer spending will continue to grow here into the fourth quarter into next year. I'm concerned that much of the spending that has occurred in July and August was temporary.

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I want to make one note. Kevin had mentioned Sandisk. Well, Sandisk has tripled within the last four months. It is not undiscovered. It has $5 billion dollar market cap, and it faces competition for the likes of Samsung, which is directing, directly at their market now. There is very little in the technology world that hasn't been exposed. At this point, it hasn't been taken advantage of, the valuations aren't there any longer.

GIBBS: Kevin, what do you think about that?

LANDIS: Well, first of all, let me say something about Sandisk and Samsung. Sandisk has a supply contract with Samsung and it guarantees Sandisk that they can buy the chips that come out of the Samsung fab(rication facility) at the most favored national pricing. So it's a very good relationship and they don't really compete.

Secondly, it's true, Sandisk has done very well lately as people have started to discover it, and that kind of goes to the observation that you make your best investments when no one else is looking, and you make your best returns when people start to notice it. But for every Sandisk that's an example of what can happen when people catch on, there are several others where people haven't caught on yet.

GIBBS: David Kirkpatrick, Kevin Landis, and Fred, thank you very much for joining us.