BUSINESSWEEK ONLINE : JULY 10, 2000 ISSUE
INTERNATIONAL -- ASIAN COVER STORY

The Global 1000 (int'l edition)
Meet the market-cap monsters, including a host of new tech titans

Issue 28 CoverWhen British cellular giant Vodafone AirTouch PLC (VOD) acquired Germany's Mannesmann (MNNSY) in February, it paid about $12,400 for each of its rival's telecom customers. Analysts thought Vodafone CEO Chris Gent way overpaid--but Gent didn't stop there. Scarcely three months after the $183 billion hostile takeover of Mannesmann, he spent an eye-popping $8.7 billion for one of the highly coveted next-generation mobile-phone licenses in Britain.

A few years ago, such profligate spending would have caused investors to flee. But not in this exploding telecom era. Despite the huge bets Gent is placing, shares of Vodafone AirTouch have risen by more than 28% in the 12 months ending May 31. With a market capitalization of $278 billion, Vodafone AirTouch has vaulted into the global major leagues, ranking sixth by market capitalization in Business Week's Global 1000 list this year. For investors, Vodafone's bets seem too good to miss.

The triumph of the high-flying telcos is one of the big themes to emerge from this year's Global 1000 roster. Using data compiled by Geneva-based Morgan Stanley International Inc., the Global 1000 ranks companies in 22 countries by market capitalization in dollars as of May 31. Other patterns of global investing become clear through a perusal of the list--especially the strength of global oil producers, the rebound of the Japanese, and the weakness of America's once mighty consumer-brand marketers.

But the strength of those who sell telecom services and others who make its vital equipment--handsets, networks, and the like--comes through most clearly. Of the top 25 companies on the list, 10 come from the telecommunications field, as opposed to 5 in 1999. And this strength is all the more remarkable given the huge sell-off in telecom and technology stocks that occurred in early spring.

European telecom companies dominate this roster: Deutsche Telekom (DT), France Telecom (FTE), Ericsson (ERICY), and Nokia (NOK), as well as Vodafone. That's because Europe is leading the next phase of the Digital Revolution. In the next three years, mobile phones and interactive televisions will become the predominant means of Internet access in Europe and will account for 40% of all e-commerce transactions in the region, says Peter Richardson, a principal analyst at the London office of Gartner Group Inc., the telecom consultancy.

''CLEAVAGE.'' The scramble for position in this digital derby has triggered an increase in cross-border consolidation that's likely to continue. ''We will see a cleavage between a few clear winners and the rest,'' says Marco De Benedetti, chief of fast-growing Telecom Italia Mobile (TIM) (TI), which has moved from No. 95 last year to No. 60 this year. ''Lots of small players will be aggregated with with larger ones." Besides Vodafone's purchase of Mannesmann, this year saw France Telecom's (No. 25) $37.5 billion acquisition of British mobile-phone operator Orange (ORNGY), and Dutch telco KPN (No. 130) take a massive stake in E-Plus of Germany.

To be sure, the U.S., which led the way in the first phase of the Internet's evolution, is still a mighty presence on the Global 1000. Many of the U.S. companies that provide the plumbing needed for the digital world are still at the top of this year's list. U.S. networking giant Cisco Systems Inc. (CSCO), for instance, has jumped from ninth place to third in this year's rankings. And microprocessor maker Intel Corp. (INTC) (No. 2) has seen its shares rise more than 130% as of May 31.

But the Digital Revolution is producing a new crop of winners in Japan as well as Europe. Take Japan's leading wireless operator, NTT DoCoMo, which went from 27th position last year to No. 8 in 2000. DoCoMo's i-mode, a mobile Internet connection service, has attracted nearly 8 million subscribers since February, 1999. Beginning in May, 2001, cell-phone customers will have access to a new high-speed system that will offer such features as video content. ''Your cell phone will come equipped with agent software that will fetch stock quotes or go shopping for you,'' says Keiichi Enoki, director of DoCoMo's i-mode operations.

DoCoMo is one of many Japanese companies to put in a good showing this year. Among the winners are the country's industrial electronics giants, which are enjoying a boom in exports, a surge in demand for memory chips and other high-tech devices, and a noticeable pickup in high-tech spending in Japan. Hitachi has rebounded nicely, but the biggest winner is Fujitsu Ltd. (FJTSY) (No. 96). Since taking over two years ago, President Naoyuki Akikusa has transformed the company from a stodgy chip- and mainframe-computer maker into an agile provider of Internet-related services, which now account for nearly 40% of revenue. Fujitsu offers its customers everything from stock trading to auctions to Internet connectivity.

The triumph of technology and telecom contrasts sharply with the fortunes of many leading Old Economy players. After nearly two decades of restructuring, most of the cost savings have already been squeezed out at big established companies. And a low-inflation environment has made upping prices difficult.

Beijing Lull  
BEIJING LULL: Profits have slipped, and problems have mounted, at Coke
These conditions have sapped the profits of many global household names, and given them a bad reputation--for the moment, at least--among investors. Coca-Cola Co. (KO), suffering management turmoil and a profit slump, has slipped in the rankings from 11th to 26th. Cincinnati's Proctor & Gamble Co. (PG) has been forced to issue profit warnings--and fire its chairman. Food companies are feeling the heat, too, especially since consumers won't pay any more for well-known brands. ''You can no longer price your way to prosperity, laments H.J. Heinz Co. (HNZ) (No. 382) President and CEO William R. Johnson. Heinz's shares are down 18% for the 12 months ending May 31. Explains Johnson: ''We relied on pricing too long and pushed it beyond where it needs to be.''

REALLY BIG OIL. Currency volatility plays its part in the listing. The persistent weakness of the euro has eroded profits at a number of major companies. With Europe as its biggest market outside the U.S., McDonald's Corp. (MCD) Vice-Chairman and President James R. Cantalupo estimates that the euro's decline will shave more than $65 million off net income this year.


  Tokyo Showroom
TOKYO SHOWROOM: Hot new models have given Toyota (TOYOY) a big boost
Yet even among the Old Economy companies, some individual corporations have managed to avoid investor disappointment by turning in superior results. Here Toyota Motor Corp. stands out with its dramatic climb to the 21st spot. Since the mid-'90s, the company had been fighting a decline in domestic market share and battling to reverse a reputation for stodgy models. The strengthening yen has eroded earnings, too. But Toyota has fought back, securing a lock on 42% of the Japanese market with a string of new rollouts like the hot Vitz compact. In the U.S., its Tundra pickup has firmed up market share up, too. Investors rewarded the carmaker by boosting its market capitalization by 70%, to $170 billion.

Indeed, it's not all bad news for global blue chips. Ongoing consolidation in the oil industry, for instance, has created some real monsters, while the rising price of oil has produced windfall profits. Exxon Mobil Corp. (XON), formed by the merger of two U.S. heavyweights, tops the list at No. 5. Meanwhile, Exxon's longtime rival, Royal/Dutch Shell Group (RD), has accomplished a big turnaround in the past couple of years. The company suffered from complacency and a lack of financial discipline, but Chairman Mark Moody-Stuart has shaken up the ranks and taken a knife to costs.

A tumble in oil prices could rearrange those rankings fast. So could an unexpected delay in the telecom revolution that's expected to sweep Europe and then the world. Investors won't tolerate billion-dollar bungles in fast-moving global markets. But they'll rush to reward the bets that pay off.

By Kerry Capell in London, with Brian Bremner in Tokyo and bureau reports

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The Global 1000 (int'l edition)

ASIAN COVER IMAGE: The Global 1000

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TABLES: The Global 1000 (.pdf) (int'l edition)



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