| BUSINESSWEEK ONLINE : NOVEMBER 29, 1999 ISSUE | ||||||||
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| INFORMATION TECHNOLOGY
The Info Tech 100: Hottest of the Hot In the past six months, the e-commerce and wireless sectors streaked ahead fastest were e-commerce and wireless When Shop At Home Inc. (SATH), America's third-largest TV-shopping channel, decided to get into e-commerce, it wasn't going to settle for a handsome-but-dumb Web site. The channel wanted to target cybershoppers with the merchandise they were most likely to buy--just the way Amazon.com (AMZN) does with books and music. That made Shop At Home's choice of software suppliers easy: It went with BroadVision Inc. (BVSN) The company sells Web programs that make it a snap for e-tailers to customize their offerings for each customer. ''BroadVision was the best we saw,'' says Tim Engle, president of Shop At Home's Web site, collectibles.com. Such testimonials help explain BroadVision's sizzling stock performance in the past six months. Since May, shares in the Redwood City (Calif.) company have jumped more than fivefold, to 88 1/2, thanks to surging revenues from a roster of blue-chip clients such as Wal-Mart Stores (WMT), Home Depot (HD), Sears Roebuck (S), and Circuit City (CC). Sweeter yet, unlike most other Net companies, BroadVision is profitable: Its net income in the third quarter jumped 150% from the same period in 1998, to $4.5 million. ''We are the 800-pound gorilla here,'' boasts CEO Pehong Chen. It helps that BroadVision is in the right business at the right time. Our six-month checkup on the BUSINESS WEEK Info Tech 100 shows that e-commerce, wireless communications, and contract manufacturing are the hottest segments of technology these days. The annual list of the world's top 100 information-technology companies is ranked using a combination of revenues, sales growth, return on equity, and stock appreciation. In this update, BUSINESS WEEK measures how those top 100--minus the five that have been acquired--have fared in the stock market since May. HAMMERING. The short answer is: They've burned up the track. In a period when the Standard & Poor's 500-stock index eked out just a 3% gain, the Info Tech 100 appreciated on average by 37%. The top 12 companies have doubled in value. And the No. 1 performer, Hikari Tsushin Inc., a Japanese seller of wireless-phone services, has risen 535%. It's followed by No. 2 BroadVision and then Qualcomm Inc. (QCOM), a leading U.S. provider of wireless-phone technology, up 224% since May. Not that there haven't been laggards. Thirty-two of the Info Tech 100 companies failed to beat the S&P index. Online brokerages and distributors of computer products, in particular, got hammered in the last half year. For example, Web broker Ameritrade Holding Corp. (AMTD), which had the best-performing stock in the Info Tech 100 ranking earlier this year, with a 1,263% one-year gain, has tumbled 44% in the past six months--as heavyweights such as Merrill Lynch & Co. (MER) have muscled into the field. Even the giants in the PC industry performed only modestly. Intel Corp. (INTC) is No. 44 on the list, while Microsoft Corp. (MSFT) landed at No. 57. As the technology industry evolves, former highfliers are giving way to up-and-comers. And there's no business like the wireless business these days. Of the top 25 companies, a remarkable nine are in mobile communications, including Hikari, Qualcomm, Nextel (NXTL), and NTT DoCoMo. Their stocks have been soaring, along with demand for wireless services. The number of subscribers worldwide is projected to surge nearly 50% this year, to 452 million, according to PaineWebber Inc. That number is expected to rise 37% next year. With the number of customers expected to double in a mere two years, wireless-phone companies are investing heavily to keep up with the demand. ''There's no apparent limit to spending on infrastructure and equipment,'' says analyst Mark Lowenstein of Yankee Group Research Inc. One of the biggest beneficiaries is Qualcomm. The San Diego company developed a cutting-edge wireless technology called code division multiple access (CDMA) that is being used in Asia and the U.S. by companies such as Sprint Corp. (FON) and Bell Atlantic Corp. (BEL) Now, CEO Irwin M. Jacobs is taking the unusual step of moving out of the business of making wireless telephones and networks so that he can concentrate on technology licensing and specialty chips for cellular phones. Qualcomm won't make much wireless gear. Instead, it will sell chips and collect royalties from outfits that use its technology. The move already is starting to work: The company's sales grew 14% in the third quarter, to $1.1 billion, and earnings more than quadrupled, to $170 million. ON A RIP. Wireless-service providers around the world are riding the same wave. Hikari Tsushin, which markets cellular service in Japan, is on a rip (page 150). And NTT DoCoMo, the wireless subsidiary of Japanese telecom giant Nippon Telegraph & Telephone Corp., is so successful that its market capitalization now exceeds that of its century-old parent. One reason for the stock surge is DoCoMo's popular i-Mode wireless Net service, which lets cellular users grab information from Web sites. By the end of this year, DoCoMo's iMode subscribers are expected to top 4 million. Meanwhile, Nextel Communications in Reston, Va., has boosted its number of subscribers 68% this year by selling phones that combine cellular and walkie-talkie features. And there's more growth ahead: ING Barings analyst Peter C. Friedland figures that Nextel's revenues will climb 45% in 2000, to $4.6 billion. The Internet shine is even starting to rub off on wireless companies. ''Investors are increasingly perceiving wireless as an Internet play,'' says Sean Butson, an equity analyst at Legg Mason Wood Walker Inc. in Baltimore. Credit the emergence of wireless Net-access gizmos such as the 3Com Corp. Palm VII and the new Sprint phones that can snatch flight schedules, stock quotes, and such off the Web. Adding data capabilities to cell phones can increase subscriber revenues--a big boost in an industry prone to relentless downward price pressure. The prospect of new users and revenue streams has lifted wireless stocks by 80% this year, making them the fastest-growing sector of the S&P 500. Companies that make the tools for others to get into electronic commerce also are sizzling. Beyond BroadVision, there's Exodus Communications Inc. (EXDS) (No. 11) in Santa Clara, Calif., the leader in the $2 billion business of hosting Web sites for other companies. Exodus' revenues have been soaring an average of 40% for the past six quarters, and there's no sign of a slowdown. Forrester Research Inc. predicts that the Web-hosting business will increase sevenfold, to $14.7 billion, by 2003. Exodus is well-positioned to take advantage of that explosion, with 15 data centers around the U.S. and Europe and a who's who of corporate clients, including Lycos, Hitachi, and Merrill Lynch. ''It's enjoying such a great run because people understand you need a stable foundation for e-commerce,'' says analyst Richard A. Juarez of BancBoston Robertson Stephens Inc. The same focus on electronic commerce has propelled software makers Verisign Inc. (VRSN) (No. 4) and Oracle Corp. (ORCL) (No. 5) to the top of our list. Verisign sells security services that ensure the legitimacy of online transactions, while database king Oracle has leaped head first into offering Net-based software applications on a subscription basis to corporate customers. All the snazzy new Web technologies rely on a steady supply of cheap, powerful computers and networking gear. Helping provide that are the third group of Info Tech 100 winners: contract manufacturers. Leaders in the field include Celestica (CLS) (No. 16), Solectron (SLR) (No. 20), and Flextronics International (FLEX) (No. 24). The biggest gainer in the group was Toronto's Celestica, which used to be IBM's Canadian operation. Like its rivals, Celestica has benefited from an upsurge in outsourcing--especially from the red-hot Net equipment makers. In a $72 billion sector growing at 20% annually, Celestica's revenues climbed 59%, to $3.7 billion, for the first nine months of the year, while adjusted net earnings jumped 208%, to $82 million. Analyst Charles Mullen of researcher Technology Forecasting in Alameda, Calif., says investors are recognizing the inherent efficiency of contract manufacturers. ''The market is valuing them for what it thinks they can become,'' he says. THREAT. Meanwhile, prospects for several other Info Tech 100 companies have dimmed considerably in Wall Street's eyes. Take Ingram Micro Inc. (IM), the giant computer distributor in Santa Ana, Calif. It has been the worst performer of all the former highfliers in the past six months, with its stock tumbling 45%. Financial analysts have become concerned that plunging PC prices and the growing popularity of direct sales threaten traditional distributors--with good reason, it seems. While Ingram Micro's revenues rose 18% in the quarter ended Oct. 2, to $6.71 billion, its profits fell 71%. That prompted CEO Jerre L. Stead to announce his resignation. The same sort of concerns have driven down the stock of Ingram rival Tech Data Corp. (TECD) in Clearwater, Fla., by 22% in the past six months. Even a dot.com name is no guarantee of success. Ameritrade Holding Corp. (No. 94) and online brokerage rival E*Trade Group Inc. (EGRP) (No. 89) have been battered in the last six months. The slump in Net stocks hurt the day-trading business. Even worse for the companies' long-term outlook, rivals such as Merrill Lynch are moving on to the Net. Investors also have turned bearish on Excite@Home (ATHM), a provider of Net-over-cable service, since AT&T (T) assumed a controlling interest in the company. The winners in the Info Tech 100 update would do well to pay attention to the fate of the losers. Perot Systems Corp. learned that a wildly soaring stock price isn't always a good thing. After the company's initial public offering, shareholders rushed to buy the stock because of the reputation of Ross Perot, sometime Presidential candidate and founder of Electronic Data Systems Corp. But the investors weren't always the best informed. Some stockholders called the company months after the IPO ''to ask us what business we were in,'' says Chief Financial Officer Terry Ashwill. ''We spent a lot of time trying to settle people down.'' That led to a 43% drop in the stock during the past six months, even though earnings have climbed 50% in each of the last three quarters. The lesson: Even highfliers can suffer at the hands of fickle shareholders. By Andy Reinhardt, with Robert D. Hof, in San Mateo, Calif., Steven V. Brull in Los Angeles, Irene M. Kunii in Tokyo, Wendy Zellner in Dallas, and bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS The Info Tech 100: Hottest of the Hot TABLE: Snapshot: BroadVision TABLE: The Info Tech 100 Japan's Mobile Hotshot PHOTO: Yasumitsu Shigeta TABLE: Snapshot: Hikari Tsushin Excite@Home: Rebound@Hand? TABLE: Snapshot: Excite@Home INTERACT E-Mail to Business Week Online | |||
