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SEPTEMBER 8, 2004
What Tech Investors Need Now: Patience [Page 2 of 2] Q: What, if anything, is going to lift Oracle (ORCL ) out of the doldrums? A: That's a very tough problem. They have a commanding position within the database market, but databases are the unsexy part of what is a very sick industry right now (enterprise computing). So Oracle needs enterprise software demand to pick up, and they need to have products that are higher growth than just databases. Right now that looks like a tall order. Q: You noted that tech stocks have been more out of favor than the average stock. How have your funds been doing during this period? A: Not surprisingly, we've taken it on the chin. Q: How badly? Some funds worse than others? A: Our funds do have different characteristics, but they're all tech funds. So as a group, they've underperformed the Nasdaq. Q: What are your top three stocks for 2005? Are you buying anything now? A: That's a pretty broad question there. Let me answer that question a little bit differently. I'll say it this way: The biggest position in the Firsthand e-Commerce Fund (TEFQX ) is Websense (WBSN ). The biggest position in our Technology Innovators Fund (TIFQX ) is PDF Solutions (PDFS ). The biggest position in our Technology Value Fund (TVFQX ) is Sandisk (SNDK ). Websense is a software company that provides IT managers with the tools to regulate and monitor employee Internet usage, which keeps employees from getting you sued by going to inappropriate Web sites, helps keep productivity high, and overall gives managers access to information that ensures abuse isn't going on.... It's a great product, it's rapidly gaining popularity, and it has been growing for the last four years -- and is just now being noticed. PDF Solutions offers tools and services to enhance production yields of advanced semiconductor products. That may sound dry, but there are big bucks on the line. It does no good to spend billions on a new chip factory with cutting-edge tech if the chips don't work. So their value-added is very real. They're a little company but can provide big benefit to anybody in the chip industry. Sandisk is a little bit more well known than the other two -- they are the early leader and pioneer in flash-memory products. They make the kind of flash that's removable, not embedded, and that's the kind of flash the world is demanding more and more of. The market for flash has expanded from cameras to cell phones and USB drives. There are those who worry that flash will become a commodity product. I'd like to point out to them that oil's a commodity product, and it has done pretty well for people lately. Q: What's your outlook for your e-commerce fund? And, for that matter, for e-commerce broadly? A: The growth in e-commerce, like a lot of tech trends, is much more real than people have recently given it credit for. We've gone through the early hype, the bubble bursting, and now we're down to the companies that really have a rational business model and are the beneficiaries of a strong underlying trend that really is happening. Almost any prediction made about the Internet in 1999 or 2000 is coming true -- it just took longer than people thought. The stocks in our e-commerce fund are positioned to do very well. The dot-com blowup has come and gone, and now we've got real businesses. Q: In e-commerce, are you high on eBay (EBAY )? A: eBay has clearly crossed over to blue-chip status. I think a lot of money managers outside of tech own it because they feel they have to. It's not GE (GE ) yet, but it has really become a must-own stock for a lot of investors. As such, it's bound to be a fairly expensive stock. If you own it, you could sell it, because it's expensive. Then again, I could have made that statement anytime over the last five years, and it would have been a bad trade to sell that stock anywhere along the line. They do seem to have a pretty tight grip on their particular kind of online marketplace, so I do think this optimism is warranted, for the most part. Q: What are your thoughts about valuations of tech stocks now? A: I think if you're following some of the more famous names -- Nortel (NT ), Lucent (LU ), Sun (SUNW ), Oracle -- you'll hear people make the argument that they're still very expensive. That's true for a lot of established tech companies, but there are also quite a few up-and-coming growth stories that are relatively undervalued, and we think those are some of the best bargains going. Q: What will it take for the tech sector to do better? A: Time. Patience. And improving fundamentals. Q: What are you watching on the frontiers of technology? A: A lot of interesting possibilities are out there. If the price of oil stays high, alternative-energy technologies might actually go from promising "someday" stories to here and now. In particular, I think the LED will replace the lightbulb in the next few decades, and that will be a big energy saver. I also think that solar power might finally be ready for prime time. But there are, as always, lots of intriguing futuristic technologies being worked on. Q: What are some of the investments that have been made for the Firsthand Global Technology Fund? A: First of all, you can get a portfolio snapshot by visiting our Web site (firsthandfunds.com) for any of our funds. That said, some of the bigger positions in our Global Technology Fund include Alvarion (ALVR ), UTStarcom (UTSI ), Samsung, and Mercury Interactive (MERQ ). Q: How much weight would you give tech in a long-term portfolio now? A: As much as you have the nerve to hold. Tech's about as out of favor as I've ever seen it, which probably means six months from now it'll still be out of favor. So you can make some great investments but won't get any positive reinforcement for them in the near term. Q: So patience is the word! As you said earlier. A: Patience, patience, patience -- absolutely.
 Edited by Jack Dierdorff
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