Published July 19, 2000
Veterans of the Internet at the “Europe in the Internet Economy” conference, earlier this year in Madrid, are concerned about the expanding Internet world passing them by.
Europeans are attentive to catching up with the U.S. regarding the Internet Economy. Political talk has continued this way since WWII. To be more American-like in doing business means that Europeans be more flexible, aggressive, entrepreneurial and less risk-averse.
The U.S. economic and high-tech dominance, and the speed at which advances overshadow each other, is awakening our global neighbors. Asians, Australians and Latin Americans are also scrambling for position in the Internet economy.
Born in America, the Internet has so far been an American phenomenon. Interestingly, nothing on the scale of a Yahoo or Amazon.com exists outside this country. Companies of that size are penetrating other markets beyond these physical borders.
One area of significant advantage in Europe, and to a lesser extent in Asia, is wireless communications. The disgracefully poor cellular service quality common in the US is absent in Europe where wireless phones work well. This lead is expected to increase as new Internet-capable devices are added to this demand for mobile data and voice connectivity.
The venture capital insurgence, largely responsible for U.S. Internet commercialization, has arrived in Europe, particularly London. Internet business incubator startup companies are everywhere, funded privately and by governments. Initial Public Offerings emerge as VCs extract their investments and move to making other ideas happen.
Net-startup fever propagates elsewhere in the world too. UOL in Brazil is pushing back America Online as are players in China, Taiwan and Singapore with their offerings.
The common thread through all this is that companies and customers are finding and communicating with each other in meaningful ways. Even governments and entrenched local conglomerates are learning to listen and be responsive. Trends of the past several years suggest this is a good change.
National differences are lessened in the common marketplace of the Net, just as the telephone and jet travel have mutualized cultural understanding and cooperation. Still many logistical, legal, and equitable barriers persist, as they have for generations. The French, for instance, are very unwilling to surrender any part of their six weeks paid vacation in favor of American round-the-clock entrepreneurism.
Last Friday, Ken Smith, Portfolio Manager for Munder Funds (MI) spoke at the Holiday Inn in Bozeman, MT to a few hundred invited investor-clients of DA Davidson. “Investment frenzy is going to end,” says Smith, replaced with practical long-term capital appreciation. Growth at reasonable prices (GARP) is achievable, he says, by investing in both seasoned and emerging companies with clear potential.
In an informative talk, Smith clarified that those first place Internet players and suppliers are where investments in future technology are most valid. The “gee-whiz” tools, products or fancy Web sites are not the Munder NetNet Fund focus.
“Sometimes the best products are not the economic winners,” said Ken Smith. “Apple Computer clearly has had the best operating system for years, much superior to Microsoft Windows; but Apple didn’t market as well as Microsoft.”
Cisco Systems is unmistakably significant now and into the future. They make the routers and switches that inner-connect the Internet. A broad range of industries are integral with the Internet in one way or another. The short list of well-positioned, top equity holding companies, although unlikely household names, include:
Inktomi Corp. involved with network enhancing software; Comverse Technology that is engaged in computer telecommunications and software for information processing; PSINet, Inc. is a major network and leading provider of Internet access services; Nextlink Communications offers commercial customer’s long distance and voice messaging in fourteen states.
Teradyne Inc. makes electronic test equipment used by electronic component manufacturers; Corning, Inc. is into information display, advanced materials and telecommunications; Applied Materials, Inc. is involved in spare parts and wafer fabrication for the worldwide semiconductor industry; and Altera Corp. is a leading designer of programmable logic semiconductors.
Have you seen the growth charts of Internet usage lately? Internet penetration as a percent of households is: US 50%, Canada 43%, Sweden 41%, UK 24% and Germany 13%. Internet access is reaching into more homes in Australia, France, Netherlands, South Korea, Taiwan, Brazil and Italy.
Global competition is compelling AT&T to upgrade 40% of it’s existing networks with better fiber. Other companies like SDL and IDS Uniphase are at capacity, products and services sold out through 2001.
When asked his pick for the field of future technology investments, Smith said proudly, “Wireless and Optical Networking! The expected date now for wireless subscribers to reach 1,000 million is the year 2002; it may come sooner.”
“The US is behind the rest of the world in wireless,” said Smith. Seventy percent of Scandinavians commonly and economically send short text messages to their friends, business partners, family in Europe.
Smith added, “The rate of adoption of new technology is accelerating, driven by the Internet and increased communications!”
By the way, those black, white and orange tubes being laid under the streets of Livingston are hollow, but will contain fiber optics for future communications. Are you concerned that the Internet may pass you by?