A Time for Reassessment by Tech Firms
U.S. technology stocks are down. Way down. Although the Dow Jones index has fallen about 20% since July, technology stocks have fallen 30% to 50%. Not since 1974 have they reached such depressed levels.
This decline has important implications for the technology community. Factors causing Wall Street to lose confidence in technology companies include concern over the general business environment, disappointing corporate profits and profit outlook, concerns over recession and its effect on cyclic stocks and the Mideast crisis.
Already, the decline in stocks has led to cancellation of public offerings. Clearly, current prices are not ones that companies can take back to the market. Exacerbating the problem, the again-conservative banking industry is steering clear of high-tech companies as too risky. In this environment, entrepreneurs will think twice about wanting to go public. Going private could be a trend of the 1990s. Cash will be king.
Will low share prices create a fire sale to foreign interests? Because foreign stock markets were hit hard and because foreign firms are generally reluctant to be seen as preying on cross-cultural acquisitions, a fire sale seems unlikely. However, a modest increase in offshore financing can be expected.
Established companies--those with cash or a high stock price--will see ample opportunity for acquisitions of technology or other beneficial strategic arrangements with other companies. The effect of the stock slide may be to draw the U.S. high-tech community more tightly together--interests, assets and technology being traded for mutual advantage.
Companies that have the lowest perceived stock prices relative to value can take heart. Now is the time to rewrite stock options for valued employees--a one-time chance to lock in exceptional talent.
Some companies will take advantage of low share prices and below-book values to buy back their own stock. Intel already announced its intention to do this, and other companies will follow.
Multimedia Industry to Become a Giant
Multimedia is destined to change the face of desktop computing, electronic presentations and creative learning tools. Although now in its infancy, the multimedia industry will grow into a multibillion-dollar industry during the next decade.
The relatively new term multimedia has been the subject of many definitions and interpretations. In essence, it represents the collaboration of many industries: entertainment, telecommunications, video, digital recording and computers.
The Japanese could represent a significant force in multimedia. They are clearly taking a broad view of the market opportunities. Sony recently announced a multimedia computer featuring video windows that show movies downloaded from an 8-millimeter camcorder. Fuji Photo Film has developed memory cards to store captured electronic still images that can be accessed by a PC. Ricoh has developed a new system for IBM PCs that enables a user to run commercially available software programs by spoken commands.
In the area of emerging technologies, the Japanese view multimedia-capable computers as nothing more than “intelligent” high-definition TV sets that will be capable of editing home movies, concerts and sports events. A Japanese project called TRON (The Real Operating Nucleus) emphasizes the use of computers in regulating the home environment.
Given Japan’s know-how in consumer electronics and its near-term emphasis on the home, U.S. companies would be better served by aggressively collaborating to identify multimedia opportunities in the home/consumer marketplace.
Some U.S. Makers Deserting Fast Chips
Are U.S. producers abandoning the fast-SRAM market? This year, three U.S. companies have left the fast static random access memory business.
Fast SRAMs, which represent a $1-billion worldwide market, are very high speed memories. They are found mostly in supercomputers, workstations and high-end personal computers.
In the early 1980s, fast SRAMs were niche products that yielded good profits. In 1980, only 10 companies made them. Intel led the pack, with 55% of the market, followed by National Semiconductor, with 17%, and Fujitsu, with more than 10% in its second year of sales. Advanced Micro Devices, Intersil, Motorola, NEC, TCMC, Texas Instruments and Toshiba were the other players.
By 1988, 27 companies were making fast SRAMs, too many for the market to sustain. Competition became stiff. And fast SRAMs became less differentiated, looking more like ordinary chips.
Fast-SRAM profit margins are being squeezed, even though prices are holding steady. Normal price erosion, the large number of competitors and the cost of research and development leave little room for profit, many U.S. producers say.
However, the rapid exit of some suppliers is making it difficult for others to keep supply flowing smoothly. On the other side, Intel, which watched its fast-SRAM market share go from 99.7% in 1978 to near zero last year, is starting to make a run for a place on the charts. The firm anticipates a 20-fold increase in fast-SRAM revenue this year.
