Issue 5-16, April 19, 2000

Numbers, numbers, numbers

By Jean-Louis Gassée

As expected, the stock market roller coaster generated its share of messages in my inbox. We have a rule not to comment on our stock's price and if there ever was a good time to stick to that rule, it is now. Commenting on the market's ups and downs is also problematic, but I can still enjoy the Talmudic exercise of commenting on the comments. As we know, Microsoft was fingered as the trigger for the "correction". If Microsoft suffers from Judge Jackson's decision, the entire high tech industry must be affected, so said the haruspices. First, Microsoft isn't likely to be materially impacted any time soon. Psychologically, perhaps. But for material consequences, the appeals process gives them a fair chance of making their case last a while-- that's the system and they have a right to use it like everyone else. Second, let's assume for a moment Microsoft is impacted. They were a Monopolist and are now prevented from abusing their position. What does this mean in practice? A monopoly situation means, among other things, higher profits than in a more competitive situation. Conversely, curtailing the MS monopoly leads to a transfer of profits from the company's coffers to their competitors' income statements. I don't see how Microsoft being restrained harms the high-tech industry, au contraire.

Analysts quickly figured out the absurdity of the "explanation", and came up with a better one. The forecast for PC sales: lower. If memory serves, that gloomy prognosis came from Goldman Sachs. As a result, Microsoft's profits would be lower and the entire industry would be affected by a lower rate of PC shipments, or growth thereof. That's better logic, but it doesn't explain a 30% or so "correction" for the NASDAQ. These guys should fess up. The herd moves as a herd moves. The Microsoft truck on the neighboring road backfired loudly, and this time, the nervous herd went in the direction everyone agreed it would go some day. All discussions after the fact, including this one, are just that.

But the fun doesn't stop there. Sun announces robust profits because the Web consumes a vast amount of their iron. Yes, but all these dot coms are finally being as they are: hopeless cash burners engaged in the marketing and advertising version of MAD, Mutually Assured Destruction of cash reserves. That's the new conventional wisdom. Unfortunately, The New York Times and The Wall Street Journal publish stories showing some Web retailers starting to make money--not all dot coms are, or salvation.

It gets better. Now Intel is announcing robust profits, that's the past quarter; and capital investments, that's for robust demand in the future, a mere ten days after the gloomy forecast for PC industry and it's other overlord. Both stories can't be right and I look forward to the updated bulletin from the Microsoft haruspex. But a colleague of mine says I'm short-sighted. Both Intel and Goldman Sachs are right. The explanation is under my nose says my friendly critic, this is the post-PC era and appliances will more than take up the slack. My friend is clearly analyst material.

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