Boring Portfolio

Boring Portfolio Report
Wednesday, March 19, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (March 19, 1997) -- More "death of technology" stories clobbered the Nasdaq today and, to a lesser degree, got a grip on the Dow and the S&P 500, as well. The stories acquired some face credibility because they came on the heels of cautious comments made by CEOs of major networking companies who have been attending a technology conference in Virginia.

None other than John Chambers, head of Borefolio holding CISCO SYSTEMS (Nasdaq: CSCO) reportedly said yesterday that some Internet service providers are cutting back on purchases of computer networking equipment this quarter. Regional Bell operating companies (RBOCs) were somewhat "erratic" in their purchases, as well, while larger corporations' demand for equipment remained robust, he reportedly said. According to the story, RBOCs and Internet service providers account for about 30% of Cisco's total revenue.

So, apparently contrary to what I asserted yesterday, at least some ISPs are indeed slowing the rate of growth at which they build out their infrastructures -- possibly due to uncertainty about the relative merits of competing technologies or because they're waiting for new products expected to be unveiled later this year -- such as Cisco's "Big Fast Router" or its next-generation access switch (presumably to be called the AS 5500).

But does that portend the death of networking? Hardly.

Interestingly, at least some analysts (and financial reporters) are beginning to say out loud that perhaps this correction in network stocks -- although not entirely unjustified -- has been more than sufficient now, thanks. Certainly if one looks at Cisco today, what is notable is not that the stock fell a half-buck, but that it fell only a half-buck. Indeed, anyone who bought Cisco this morning while everyone else was tossing the stock out the window made a nice profit for the day.

Late this afternoon a story on the Dow wires had this as its lead: "A confluence of factors is producing a modest sales slowdown in the computer-networking industry, but under the surface the currents of growth remain strong."

The story ticks off the litany of factors that have converged to produce the correction: slower spending in Japan, weak sales in parts of Europe, uncertainty about global telecommunication deregulation, anticipation of new products, and so forth.

"However," the story continues, "the need to increase bandwidth -- the size of the transmission pipes in network plumbing -- remains strong in the U.S. and abroad."

Also supporting the underlying health of the network plumbers "is the continued rise in corporate information technology budgets and the tying of more computers to networks and more subscribers to the Internet."

In this same vein, I noted with interest today that as the technology stocks were crashing through the floor, CNBC was interviewing Dr. Michael Dertouzos, head of MIT's computer science lab and author of the new book, What Will Be: How the New World of Information Will Change Our Lives. Dertouzos described how in the next decade, information technology -- and in particular the internetworking of computing capacity -- will benefit businesses, communities, and individuals.

Now just because Dertouzos says it’s so doesn't make it so, and the scenarios he paints merit as much critical scrutiny as the next guy's. Nevertheless, the contrast between, on the one hand, stock traders who wouldn't know a router from a rotisserie worrying about what might happen in the next 13 weeks, and, on the other hand, Dr. Dertouzo's informed conclusions helped distract me from some of the day's disappointments.

One last tech note tonight -- and I promise that tomorrow will be about something else. In particular, I've got a bunch of good stuff about GREEN TREE FINANCIAL (NYSE: GNT) that I'd like to toss on the table. But for tonight ...

HEWLETT-PACKARD (NYSE: HWP) and MICROSOFT (Nasdaq: MSFT) said today they are partnering to "aggressively integrate" Microsoft's Windows NT operating system into H-P's computers. In addition, H-P said that by year's end it would ship a NetPC priced around $1,000 that would operate with Microsoft software. Presumably, the purpose of the NetPC is to blunt the momentum of the rival group led by ORACLE (Nasdaq: ORCL), SUN MICROSYSTEMS (Nasdaq: SUNW) and NETSCAPE (Nasdaq: NSCP).

As if it needed any additional push, that news probably contributed to the $1 1/8 drop in Oracle's share price. Apparently lost in the "Battle of the Titans" story line the media rely on so mechanically was the possibility that today's announcement marks an admission by Bill's company that, just as they were late in understanding this whole Internet thingie, perhaps they are also late in grasping the "thin client" concept.

Moreover, to the degree that the hardware and software industries coalesce around that concept, it can only work to Oracle's long-term benefit.

The world of technology is not an "either-or" kind of place. It's not "either" Oracle wins "or" Microsoft wins -- any more than it's "either" Cisco wins "or" 3Com or Ascend or Cascade or Nortel or whomever wins. It's a "both-and" world, guys.

Both ... and.

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Today's Numbers

Stock  Change    Bid
ATLS  +  1/4   22.50
BGP   -  5/8   40.88
CSL   ---      31.50
CSCO  -  1/2   49.88
GNT   -  3/8   35.63
ORCL  -1 1/8   39.25
OXHP  +  5/8   60.25
PMSI  -  7/8   10.50
TDW   -  1  43.63
                   Day   Month    Year  History
        BORING   -1.60%  -2.46%  -2.48%  12.22%
        S&P:     -0.49%  -0.64%   6.08%  26.41%
        NASDAQ:  -1.58%  -4.56%  -3.23%  20.01%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  200 Borders Gr    22.51     40.88    81.57%
  5/24/96  100 Oxford Hea    48.02     59.63    24.15%
  8/13/96  200 Carlisle C    26.32     31.50    19.66%
   2/2/96  200 Green Tree    30.39     36.00    18.47%
   3/8/96  400 Prime Medi    10.07     11.38    12.97%
   3/5/97  150 Atlas Air     23.06     22.50    -2.42%
  6/26/96  100 Cisco Syst    53.90     49.88    -7.47%
 11/21/96  100 Oracle Cor    48.65     39.25   -19.32%
 12/23/96  100 Tidewater     46.52     43.63    -6.23%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  200 Borders Gr  4502.49   8175.00  $3672.51
  5/24/96  100 Oxford Hea  4802.49   5962.50  $1160.01
   2/2/96  200 Green Tree  6077.49   7200.00  $1122.51
  8/13/96  200 Carlisle C  5264.99   6300.00  $1035.01
   3/8/96  400 Prime Medi  4027.49   4550.00   $522.51
   3/5/97  150 Atlas Air   3458.74   3375.00   -$83.74
  6/26/96  100 Cisco Syst  5389.99   4987.50  -$402.49
 11/21/96  100 Oracle Cor  4864.99   3925.00  -$939.99
 12/23/96  100 Tidewater   4652.49   4362.50  -$289.99

                             CASH   $7635.47
                            TOTAL  $56472.97