Silicon Valley Wannabes Thirty states each got $100-150K to help small companies dip into the federal honey pot of SBIR. The Federal and State Technology Partnership (FAST) awards were stuck into the latest SBIR law for the have-not states to pretend that their sparsely populated high-tech sectors could somehow be competitive with concentrations of firms in places like Silicon Valley and Route 128. It's pure pork. But when money is being passed out with no demonstrable national benefit from pure merit competition, the politicians shift to fair-share handouts. In a bid to make the South a knowledge economy leader, the Southern Growth Policies Board has released Invented Here: Transforming the Southern Economy, a 10-year strategic plan to create an innovation-driven economy in the South. ... built around three goals: Increasing the perceived value of education in the South; Harnessing the full potential of innovation; and Creating and sustaining a quality of life that is attractive to globally competitive businesses and employees. Each of the goals is supported by objectives and benchmarks that will be used to measure the states' and the region's progress. In all, 13 objectives and 74 benchmarks are identified. What also may be of interest to Digest readers is Invented Here: Measures of Southern Growth, a several hundred page report that provides a plethora of statistics on each of the Southern states, including information on industry trends, entrepreneurship and innovation, globalization, and demographics. http://www.southern.org/main/stc/projects/invented.shtml [SSTI, Oct 5] Quixotic enterprises? Is it practical for states and regions to transform themselves into entrepreneurial centers? Michael Porter (whose book has never appeared in paperback) notes that clusters form almost spontaneously and grow to critical mass as the essential elements assemble themselves around centers of learning, R&D spirits of large companies, and inventive people willing to take risks. Would an information age industry newly assemble itself where creationism abounds? Buy a chip, puh-lease. Chip stocks could tank even deeper, says Matthew Yi [San Francisco Chronicle, October 1, 2001]. Share prices have plenty of room to keep falling. Although the Philadelphia Semiconductor Index is nearly double its value in 1998, the Nasdaq is flirting with the same lows it hit during the that last major slump. The GSTI Hardware Index is 5% ahead of the October 1998 figure and the Networking Index is down 9% from three years ago. Although chipmakers say they have excess inventory under control, there's not much demand.   Semiconductor Giant Ramps Up R&D . As computer chips get harder to shrink down and speed up, Intel is embracing research and a new culture of openness. Looking to establish a new reputation as a research leader, Intel officials have played up the tiny transistors and other recent research achievements to media and industry analysts. ... multiply its R&D funding nearly 10-fold since 1990, to an estimated $4.1B this year for 6000 researchers in 80 labs around the globe... it employs 70,000 people and commands 85% of the worldwide market for microprocessors ... last year's revenue $33B. ... The industry is getting to a point where the future directions are less clear," Isaac says. That's forcing Intel to stoke its research engine and be more open about its work. "We realized a few years ago that we had to do research ourselves on new materials and processes, This is a relatively new behavior for us." The trouble was that as chipmaking grew increasingly complex and sophisticated, Intel found itself developing a reputation for playing it safe and staying off technology's leading edge, says Manny Vara, who handles public relations [Robert Service (not the Yukon poet), Science, Sep 14] Optimists with PhDs in small companies who want government help (like SBIR) should realize that the chance of making an advance that Intel will buy depends on the small company doing better at what Intel needs than Intel's 6000 R&D people. A dribble here and there of government money is quite unlikely to make any difference whatever despite all the fluff from SBIR supporters. Only a direct technical challenge of a true innovation has a decent chance of catching Intel's interest in pursuing the new idea. And government is unlikely to spend its SBIR money betting on new ideas. If you have such a world-class idea, take it to an agency that cares about world-class ideas - BMDO. ...in our times markets bombarded by statistics makes impressionistic judgments and stocks or currencies rise or fall as much on their rumoured prospects as their recorded performance. For most of our millenium, reputation has been worth more than objectively measured wealth and therefore, for the historian, qualitative evidence is better than quantitative. Even where economic historians have scraped up the statistics, the crunched numbers tell us less - as they tire us more - than the guesswork of contemporaries which really influenced events. The revolution in economic reputations during the second half of our ,millenium is reflected in the awestruck stares of what we might call the window-shoppers of history, amazed at other people's plenty. [F Fernandez-Armesto, Millenium, Bantam Press, 1995] Eye Witness. Although the plane hit the Pentagon on the side away from my view, I did hear the explosion and see the huge plume and the long-flowing black smoke from an island in the Potomac. With some minutes I noticed that no planes were operating from National Airport and that military fighters were circling the area. About 15 minutes after the hit, I did see a crow chasing a kestrel (a small hawk) and then another crow joined in, then two more kestrels appeared and a battle was on. Ugh. The second quarter was ugly for the semiconductor industry, ATMI included: In June, the number of chips made, as measured by "wafer starts" had dropped by 30% since last December; personal computer sales declined for the first time since 1986; many countries' economies appeared near to recession; demand for almost all electronic devices seemingly dried up. The semiconductor industry is now - definitively - experiencing its worst-ever year. This downturn is like the last two downturns - added together. Our industry is experiencing the equivalent of a 100-year flood. [Gene Banucci, CEO ATMI]   Global industrial production fell at an annual rate of 6% in the first half of 2001.The picture may soon look even worse. Early estimates suggest that gross world product, as a whole, may have contracted in the second quarter, for possibly the first time in two decades. Welcome to the first global recession of the 21st century. ... The world economy grew by 4.8% in 2000, its fastest since 1984, and most economists had expected 2001 to be another bumper year. Even those who predicted a hard landing for America's economy did not expect the whole world to slump with it. The downward revisions to 2001 growth forecasts have been unusually abrupt and they are probably still too rosy. ... The 28% average fall in share prices since early 2000 has wiped $10T off global wealth. [The Economist, Aug 25] Price: What I certainly didn't anticipate was how fast earnings would come down for a lot of technology companies. I think people were anticipating a normal recession and it has been anything but a normal recession. It has been a capital-spending-led recession. Many of these companies have gone from earning very high returns to earning hardly any money at all. So, if there is one thing to take away: Don't underestimate the leverage of the technology group in a capital-spending-led recession. ... Landis: I think we underestimated just how dependent technology had become on the rest of the economy. So what we are looking for now is for interest rates to decline enough, to make capital cheap enough. that people will invest in tech again. The technology sector is really at the mercy of the overall economy right now. [Barrron's Sep 10] Booms begin in reality and rise to fantasy. Stock investors seemed to forget that more capital spending means more competition, not less; that more competition implies lower profit margins, not higher ones; and that lower profit margins do not point to rising stock prices. It seemed to slip their minds that high- technology companies work ceaselessly to make their own products obsolete, not just those of their competitors that they are inherently self-destructive. At the 2000 peak of the titanic bull market, as shares in companies with no visible means of support commanded high prices, the value of all stocks as a percentage of the American gross domestic product reached 183%, more than twice the level before the crash in 1929. ... Digital communications were like the wheel or gunpowder or the internal combustion engine, only better. The Internet would revolutionize the conveyance of human thought. To quibble about the valuation of companies as potentially transforming as any listed on the Nasdaq stock market was seen almost as an act of ingratitude. The same went for questioning the integrity of the companies' reports of lush profits. In markets all things are cyclical, even the idea that markets are not cyclical. [James Grant, New York Times, Sep 9] history has repeatedly made fools of people who try to predict future technological developments, let alone the implications of those developments for long-term economic growth. And most of the mistakes have been in the same direction. Since the 1960's, futurists have consistently overestimated the future rate of technological progress and economic growth. (Rent "2001: A Space Odyssey" or read Herman Kahn's "The Year 2000" if you don't believe me.) The only major upside surprise was the productivity surge from 1995 to 2000 and that, it turns out, was partly a figment of our statistical imagination. [Paul Krugman, NY Times, Sep 5] Entrepreneur hooked on dot-com high. Surely you've got plenty to worry about this summer, with bacteria-drenched beaches, socially awkward sharks and amusement ride mishaps. But trust me, it could be worse: You could be running your own Internet business. Oh, you are running your own Internet business? Well, so is David Tilkin, who started his Norwell-based dot-com in March 2000, and you won't catch him complaining about his lot. That's because, after so many months of coming in every day and fighting for his entrepreneurial life, he's grown used to the hourly challenge of holding on to any remnants of his once-substantial life savings. [Josh Hyatt, Boston Globe, Aug 16,01] Not much light at optical conference The crowd is glum, the news is grim, and two out of nine top-tier sponsors are down for the count. Opticon, the annual optical-networking conference, is back -- and it couldn't be more different from last year's gathering. In 2000, money chased ideas. Now, most ideas know better than to ask. ``In terms of the optical market, the bubble was more bubbly than in any other sector, and the down slope is steeper,'' said Reed Hundt, former chairman of the Federal Communications Commission and now chairman of Sigma Networks, who spoke at the conference Wednesday. ``Today the business pages and the obituary pages read about the same, except in the obituary pages you read about the survivors.'' Conference organizers say more than 4,500 people are attending 62% more than last year. ... Remember the hype? Networking companies swaggered last year as the dot-coms died off. Gurus said the rampant growth of the Internet would create a virtually insatiable demand for the equipment that made it work. Networking was the world's hottest industry, and its hottest niche was fiber optics, the technology that uses beams of light to rush data through thin filaments of glass. ... Credit Suisse First Boston expects North American carriers' capital spending to drop 13.8% this year and 15% in 2002. It's still a bunch of money, as speakers at Opticon pointed out repeatedly, but. ... Many other cash-starved companies won't last long. [Jennifer Files, San Jose Mercury News, Aug 16,01]   Already, sales of GaN devices -- which are used in green LED traffic lights and in thousands of video billboards -- have surpassed half a billion dollars a year. ... GaN could be the cornerstone of several communications technologies whose widespread implementation depends on far better amplifiers than can be built with silicon ... The conventional wisdom is that GaN transistors won't be available commercially for at least four or five years. But Nitronex says it has made a technological leap that could cut that timetable down to 1-2 years. The company has already delivered GaN transistors to potential customers for testing. ... So, given all its amazing properties, why aren't GaN transistors everywhere? Because there's currently no cheap substrate ... -- RF Nitro Communications , and ATMI -- make GaN-coated wafers of sapphire or silicon carbide that can be turned into transistors. A 2-inch sapphire wafer costs about $2,000; the same-size silicon carbide wafer runs as high as $12,000. ... Other companies are in pursuit of a more ambitious goal -- wafers of pure GaN on which perfect layers of the semiconductor can be grown. These firms include Astralux; Technologies and Devices International; Crystal IS; and Kyma Technologies. [Glenn Zorpette, The Red Herring, June 15,01] All but one of the companies mentioned had SBIRs from DOD and almost always first from BMDO. Does BMDO need GaN for green traffic lights and for efficient wireless? Hardly. Does BMDO even know what it wants GaN for? Only vaguely. But in dealing with new technologies in SBIR, BMDO opts to get the new idea going and see what develops that will eventually feedback a lot bigger payoff than making incremental and predictable improvements could ever achieve. To avoid getting trapped in the technology, though, BMDO merely launches the best ideas that can show promise of follow-on investment (not just happy words) and then lets private greed drive the technology forward. Got a crazy idea for GaN; something they haven't heard of yet? Take it to BMDO with a compelling story of how you will exploit it. No "throw it over the fence" scientists need apply. Tech Firms Boost R&D. R&D spending is up 16% by info-tech companies despite revenues and profits plunging, says Steven Jones (Wall Street Journal, Aug 13). It's up to 11% of revenue, more than the previous 9.3%. Happy Birthday PC The digerati turned out in full force Wednesday night at San Jose's Tech Museum to celebrate the 20th birthday of the personal computer. Well, OK, it wasn't really the PC per se, but the IBM PC, which followed machines created by others, including MITS and Apple Computer. And it was less an IBM event than a celebration by the two companies that have profited the most from the PC's introduction, Intel and Microsoft. ... Carly Fiorina told me the term ``personal computer'' originated in the 1970s to describe an HP calculator. ... [IBM's] Bradley fired off the night's best line after being introduced as the inventor of CONTROL-ALT-DELETE.``I may have invented it, but Bill made it famous,'' The place went nuts -- except for Gates, who looked none too amused. [PETER DELEVETT, San Jose Mercury News, Aug 10] The Red Herring, with few tech IPOs to talk about, has noticed solar power. As conventional energy stumbles, solar energy is making a comeback. Caught off guard by energy sector weaknesses last year, particularly in California, the solar-power industry now faces more demand than it can satisfy. By playing to its strengths, photovoltaics may finally hit the mainstream. And even the noninally free-market Bushies want to keep pouring subsidies into the industry (some of the industry made political contributions). Mr. Holman predicts that using PV as a standard building material, called building-integrated PV, will be commonplace within ten years. Atlantis, a Swiss firm with U.S. operations in Virginia, is already doing this with PV products from Delaware-based AstroPower. the recent news about corporates scaling back reinforces what I've said before: a startup should not rely on a corporate to provide all of its funding. I would advise the startup to look for strong syndicates of VCs, as well as a good combination of strategic and corporate investors. The VC and the corporate each have something to offer. VCs typically get on the startup's board, where they provide networking support like recruiting, and they can be active in follow-on fund-raising. On our end, you get more technical support, channel access, and become part of preferred programs -- and that gives you credibility. ["Max" Schroeck, managing director of Agilent Ventures, herring.com, Aug 7]   Counting the Uncountable. Susan Woodward and fellow economist Zach McReynolds are cooking up the Sand Hill Index, a private equity index that serves to benchmark the universe of private investment. The problems in creating such an index are not small from an economics perspective. Private firms don't have to report to anybody. Sometimes they share valuation information, but most of the time (about 70%, according to Ms. Woodward) they won't. Deals are priced intermittently -- when companies are raising funds -- not continuously. Among economists these problems are described as selection bias/data censoring and intermittent pricing. ... The Sand Hill Index for 2000 is not yet complete, but Ms. Woodward thinks the picture it will show will be far grimmer than those offered by data firms like VentureOne and Venture Economics. She estimates her index will show a decrease in annual returns of about 60 percent, compared to the slip in returns of 11 percent that the data firms are touting. ... Ms. Woodward is guessing that not everyone will embrace the truth as revealed by the Sand Hill Index. "On the one hand, the VCs and other professionals will sort of hate it, because it imposes a standard on them that they didn't have to be subjected to before," Ms. Woodward says. On the other hand, she says, better information could increase public interest in private equity. [MV Copeland, The Red Herring, Aug 01] It might seem a little optimistic to start musing about another bubble while so many are peeling the gum off their faces from the last one bursting. After all, don't we need an upturn first? ... Does a resurrection mean a bubble? Yes. The history of the technology industry is always the same: excitement about something new, followed by a speculative mania, then a bust. The size of the Internet bubble may never be repeated, but bubbles are a feature of new markets. For as long as people have speculated, their business sense has declined in proportion to their perception that others were profiting effortlessly. This human tendency is fantastically heightened when people invest in technology -- perhaps because the technology industry is so fixated on the future, and is so millenarian. Rational people will always queue up to throw their cash overboard in pursuit of what they perceive to be windfall profits. In 1983 it was PC software; during the '90s it was pen computing. Next time around -- and there will be a next time -- it could be biotech, nanotech, or a fad yet unfound. [The Red Herring, June 01] they say that just because JDS Uniphase wrote down $44.8B in goodwill -- which was created when it acquired SDL Inc., E-Tek Dynamics and other companies for more than their net assets -- doesn't mean those acquisitions were failures. Their argument, which is also the company's position, goes like this: Since JDS used its highly valued stock to acquire another company whose stock was highly valued, and the value of both companies subsequently collapsed, the write-down should be viewed as a paper loss that, by itself, did not hurt shareholders. [San Francisco Chronicle, Aug 7] Which means that if you sell your company for high-PE stock, find a way to dispose of it before the market recognizes the funny accounting for goodwill. the price of solar energy has fallen by half in every decade for the past 30 years, and appears likely to continue to do so into the future [The Economist] Bleak for all those SBIR companies that inhabit the public space? Sure, but not impossible. Down times don't last forever. John Witty strategizes in Bloomberg Personal Finance (Sep 01) that the semiconductor cycle is typically four years and this one started in 98-99. He sees the book-to-bill ratio signaling an upswing soon. Nor does it help that the Korean government directly subsidizes an uncompetitive company (Hynix) as DRAM prices plunged 90% over the past year. (Should America retail ate by subsidizing the uncompetitive public SBIR companies?) By contrast, Alan Abel son in Baron's [Au 6] notes the pessimism: Humble thanks to Fred Hickey, the savvy proprietor of the High-Tech Strategist, whose sterling qualities include an aversion to crowd-think and an immunity to herd impulse, for reminding us in quite graphic terms that this time last year, the analysts were pawing-the-ground, roaring bullish on the chip stocks. And this time last year, in case you've forgotten, was not an auspicious occasion to do anything but sell the things.Yet one of the more acclaimed (especially by his firm and family) chip analysts declaimed to the world in August 2000 that he could spot nary a portent of softness in the semiconductor business, crediting explosive demand from the likes of cell phones, palm pilots and the Internet itself, none of which, he assured, showed any signs of slowing down. So, he confidently predicted, the boom in chips would go on for at least a year and a half. Hardly had the acclaimed analyst put down his crystal ball, barely had he time to acknowledge the plaudits of the grateful multitudes, than the roof fell in. Or, as Fred, always a man to mince words, puts it, "If you had listened to the touts in August of last year, you would have been destroyed." By all means, subscribe to any of the theories you prefer whn you propose an SBIR. The government technophiles do not which scenario is true, and in most cases don't care anyway. First, they decide which technology they find the sweetest and then they accept whatever the proposer says about the commercial possibilities. Inc.com’s Best Market Research Resources. This guide covers online aid, low-cost research,and focus groups. http://newsletters.inc.com/cgi-bin/nph-t.pl?U=776&M=651183&MS=1164 Silicon Valley, get ready for life in the slow lane. After five years of turbocharged growth, the tech-dominated economy here is still plunging toward a bottom. When it starts to turn around, economic growth could well look positively ordinary over the next four years. Economists warn that the valley may show signs of lagging -- or performing only marginally better -- than the national economy: flat or declining real estate prices, slower personal income, higher unemployment and meager job growth. ... Already the largest tech companies in Silicon Valley -- Hewlett-Packard, Cisco Systems, JDS Uniphase -- have cut somewhere in the neighborhood of 15,000 jobs locally and more could come. ... the dot-com boom became ``the biggest Ponzi scheme in the post-war era,'' says Kenneth Rosen, professor of economics at UC Berkeley and a former student of Kindleberger's. ``And we were in the center of it, [DAVID A. SYLVESTER, San Jose Mercury News, Aug 4] If SV can't support itself, how will it support all those hopefuls in Michigan and North Carolina who depend on SV clients? Ah, look to the government. Meanwhile, more layoffs, Copper Mountain Networks, a maker of high-speed Internet access equipment, yesterday reported a huge loss for its second quarter and laid off more than 40 percent of its work force. The company, which was founded in San Diego but now has headquarters in Palo Alto, said it laid off 145 of its 342 employees. [San Diego Union Tribune, Aug 4] Guessed Wrong on Ibis Gene Marcial touts about three stocks a week in Business Week with a performance (price gain) that's better than average. One SBIR stock he recommended last year fell on its face though. Ibis fell 67%. without lots of high-speed connections to consumers, right now there’s a lot of empty space on long-distance networks. That’s why so many telecom network operators and equipment companies have watched their stocks nose-dive. Given the bandwidth glut, capacity on fiber networks is now dirt cheap. And as any economist will tell you, that’s a very strong incentive for people to create new applications -- new products and services to travel over those dormant wires. Since distribution is cheap, beneficiaries of the bandwidth blowout of the late ‘90s will include the companies who send things over those networks. That means software, and not just the kind you use to run spreadsheets. [Jim Glassman, Tech Central Station, Aug 3] Note that Glassman does NOT favor government investment in such entrepreneurial activities as exploiting a surplus of anything. Strangely he does recommend Excel Technology, the company that paid $3M to escape a trial for fraud against the SBIR program.   Incremental progress ain't the cure. Typically, when you're in a time like we are now, what gets you out of it is some new technology, some real breakthrough that is not incremental. We have a lot of work to do on the Internet. If you look at the next three to five years, it is good incremental, but it is incremental progress. It's not the cell phone where the cell phone didn't exist. It's not PC's where PC's didn't exist. [Judith Estrin (a serial entrepreneur who is now chief executive of Packet Design Inc), New York Times, Jul 29] Although Estrin is talking about the economic downer that plagues Silicon Valley, the government is not helping in that it uses its technology money for incremental advances useful to government and no one else. That kind of use has no potential for feeding a tech revolution of any kind. what happens when cost cannot be considered. Drugs are prescribed costing hundreds of dollars a year, but reduce the chance that a middle-aged woman will suffer a hip fracture by only 1 in 7,000. New types of X-rays cost 15 times the traditional type, but reduce the risk of a nonfatal reaction by only about 1 in 2,000. ... "the core fiction of American health care," says Professor Alain Enthoven of Stanford University: "that insurance should cover every useful medical procedure no matter how small the benefit or prohibitive the cost." [MICHAEL M. WEINSTEIN, New York Times, Jul 29,01] As long as lawyers can sue AND WIN the medical world for slights to patients, doctors will prescribe more and more tests. Which is a self-feeding bonanza for technologists who keep inventing more procedures for lowering an already low risk. The situation is made worse by government technologists who sponsor new medical technology by believing a technologists claim that ht enew procedure will lower the outrageously high medical costs in America. Baloney! The new technology will almost invariably INCREASE medical expenses as it does whatever medical good is claimed. With hopes fading for a technology recovery this year, industry executives and investors are looking beyond their shrinking wealth to a broader issue: Will U.S. innovation suffer a lasting blow? The impact of a funding drought for new technology ideas dominated the third Internet Summit conference here. Where entrepreneurs and venture capitalists buzzed about deals at last year's event -- though the stock-market slide was well under way -- the tone on the stage and in the hallways this week was often sombre, if not downright ominous. Mary Meeker, the Morgan Stanley analyst who became famous for charting the rise of the Internet economy, estimated that $727 billion in wealth has been lost by the plunging total market value of some 362 Internet companies between December 1999 and mid-July. Though nontech companies also suffered, she characterized the current situation as a difficult "third inning" of a technology cycle that should rebound in six to 18 months. ... Stewart Alsop, a general partner at New Enterprise Associates, estimated that the Menlo Park, Calif., venture firm has made 10 or 12 investments this year, compared with six per month in the same period of 2000. [DON CLARK, WALL STREET JOURNAL, Jul 27] Tech cutbacks go on. There still is no bottom in sight for the technology industry.As more Silicon Valley companies report second-quarter financial results and other news, the long-awaited end to the high-tech downturn falls further away. ... The prevailing view on Wall Street is that recovery won't come until mid-2002, and that means that cutbacks made earlier this year won't be enough to get many firms through the slowdown. ...Wall Street is growing more pessimistic by the day. On July 1, analysts projected that third-quarter earnings for 82 major technology companies would drop an average of 49 percent from a year earlier, according to First Call, a provider of financial information. By Thursday, they were forecasting a 61 percent drop. The analysts still expect positive earnings growth by the first quarter of 2002 -- but only a 17 percent increase, half the 32 percent rise they predicted July 1. [JENNIFER FILES, San Jose Mercury News, Jul 27] Serious companies. Two more SBIR companies joined Value Line's list of rated stocks: AstroPower and SurModics with timeliness ratings of 1 and 2 which means that VL thinks they will go up faster than average. They join Cree on the list.   Not too long ago, anybody who questioned the religion of the start-up was told they just didn’t get it. Nimble newcomers were supposed to blow incumbents to bits with disruptive technologies. Yet the revolution, it turns out, was less technological than financial. Venture capitalists and the stockmarkets provided start-ups with capital that was essentially free. Unsurprisingly, talent and media followed the money. But high-tech incumbents and old-economy companies, too, joined the start-up stampede because they were afraid either of losing their best employees or of simply missing the gravy train. Many firms created a corporate venturing fund, spun off an Internet business or two and bought innovative high-tech gear from newcomers rather than from established suppliers. ... Yet it would be wrong to conclude that technology start-ups are down for good. Most of these developments simply mirror the excesses of recent years. Already, experienced entrepreneurs with good technology are finding it easier to raise finance than it was earlier in the year. And these new start-ups are likely to be much tougher than their predecessors. They will be built to last, rather than merely to be taken public as quickly as possible. Longer-term trends also suggest that the future still belongs to smaller firms, argues Thomas Malone, professor of information systems at MIT. When gathering information was expensive, he says, it made economic sense for decisions to be made in a few central places. Now, with information technologies driving communication costs ever lower, more and more people can be well enough informed to act independently. And staff tend to be more creative if they are doing their own thing and not following orders. [Big is beautiful again, The Economist, Jul21] Will the return to big companies emperil programs like SBIR? Probably not. The federal agencies shopwed no sign of buying in to the idea that nimble high-tech companies were a better place for technology development. Awards have gone to the plodders while the Small Business committees in Congress protect the handout. fiber-optic glut is 'just baloney'By challenging the widely accepted consensus that telecommunications carriers are plagued by a ''fiber-optic glut,'' a Tulsa, Okla. -based consulting firm this week released a route-by-route study that finds in most cases - including major segments serving Boston - fiber lines are actually operating at close to current capacity and will need to be expanded soon. The study by TeleChoice Inc. evaluated actual ''lit fiber'' capacity among Boston and 11 other big US cities and compared it to projected typical peak business and homeowner demand for voice calling, Internet access, and high-speed data services. [Peter Howe, Boston Globe, 7/20/2001] ``Everyone over the age of 45 in my lab was born in the United States. No one under the age of 45 in my lab is from the United States.'' With that simple statement, technology pioneer Stan Williams, chief of Hewlett-Packard's top secret nanotechnology laboratory, shocked a group of congressional Democrats into grasping the dimensions of Silicon Valley's talent crisis. [San Jose Mercury News, Jul 21]   Cold Summer in Progress? If the forecasts are to be believed, they have reason to worry. Chuck Hill, research director at Thomson Financial/First Call Wall Street's biggest earnings tracker says second-quarter earnings for S&P 500 companies are likely to tumble 15% from the year-ago period. (First Call doesn't compile numbers for the entire market.) That would be the steepest decline in a decade and, given the first quarter's 6.1% earnings decline, would mark the first earnings recession that is, two consecutive down quarters since 1991. [Lawrence Carrel, Individual Investor] Which goes with Chip Outlook: Rain Today, Rain Tomorrow. ... the trade association Semiconductor Equipment and Materials International, or SEMI, said it expected world-wide chip-equipment sales to decline 35% this year, to $31B. Based on SEMI's revised forecast, world-wide sales won't surpass last year's sales levels until 2004. Which explains why TJ Rodgers's Cypress Semiconductor is slicing 650 jobs, or 19% of its work force, as it posted a second-quarter loss of $18 million. Quick, buy some chips! More Excuses Enabled. One of the bellweather sectors of the technology industry, semiconductor-equipment makers, expect sales to decline 35 percent this year, the biggest year-to-year drop ever.It may take until 2004 for the industry to match last year's sales, according to figures in a forecast released Monday by an industry trade association. Some think it will be mid-2002 before the industry begins to climb out of its slump. Nevertheless, the industry expects to post its second-highest year on record with $31B in new chip manufacturing, testing and assembly equipment in 2001, according to the midyear consensus forecast released Monday by Semiconductor Equipment and Materials International, at its Semicon West show in San Francisco. In 2000, at the height of the technology boom, sales grew 87% to a record $47.7B. [DAN LEE, San Jose Mercury News, Jul 17] More companies will now have an excuse for lacking co-investment in SBIR proposals and for a government subsidy. The dot-com boom started in 1995 and went bust in 2000. Every dolt imagined he was a venture investor. There was overfunding galore, idiot businesses up the gazoo-and then pfft. Net Boom, Act II awaits. It will occur when a catalyst technology changes everything, just as the 386 chip and graphics transformed PCs. What the Net awaits is obvious: cheap broadband (enough for streaming video) and always-on connections. Already I can hear skeptics howling that bandwidth demand is not a sure thing, that the dogs will never eat it. But who can forecast demand without the supply that fires the imagination and stirs entrepreneurs to create radically new uses, not just extensions? Who in 1984 ever guessed that most CEOs would use e-mail by 1998? Who in 1989 imagined the necessity of Web-based supply-side chains, let alone the Web? How accurate is it ever to gauge, say, traffic for a proposed bridge by counting ferry boats and swimmers? [Rich Karlgaard, Forbes, Jun 11] Blame Momentum Investing for Cloudy Crystal Ball. They all wanted endless optimism and they got it. Momentum investing powered info-tech stocks to the sky. Then the bubble burst. Now the finger pointing. 'Lousy' Forecasts Industry Secrecy And Lack of Government Data. How did the telecommunications industry get it so wrong? As late as last November, Merrill Lynch & Co. predicted that domestic equipment purchases by phone and data carriers would grow by 15%, to over $65B, in 2001. Now, the brokerage firm believes such purchases will fall 7% this year. A year ago, Nortel Networks Corp. said it would spend $1.9 billion to boost production and add 9,600 jobs to meet "explosive customer demand." Last month, Nortel said it would lose $19B this quarter and eliminate 10,000 jobs -- on top of 20,000 previous cuts. What happened? The blame lies, in part, with the calculations used to predict future sales and inventory levels of telecom gear, and in turn fed into Wall Street earnings guidance. Such forecasts are "lousy," says Gregory M. Duncan, head of the telecom practice at consulting firm National Economic Research Associates, and former forecaster at GTE Labs. ... To be fair, at this time last year, detailed analysis of demand in the then-booming telecom industry seemed a bit superfluous. Spending by phone companies on gear nearly doubled from 1996 to 2000, to $47.5B, according to the Telecommunications Industry Association, whose method of calculating that figure differs from that of Merrill Lynch. At the same time, many telecom companies had fewer experts available to forecast demand. David Loomis, an Illinois State University professor and organizer of the International Communications Forecasting Conference, estimates that equipment makers and telecom carriers let go half of their forecasting employees over the last five years, chiefly for cost-cutting reasons. ... At Finisar Corp., a maker of optical components, Chief Financial Officer Stephen Workman struggles with the information provided by outside researchers. "They're usually six months behind what's really happening. It's almost laughable," says Mr. Workman. To help compensate, he has begun talking to the actual users of telecom networks, not just the carriers. ... At RHK, a San Francisco-based telecom research firm, chief analyst John Ryan has instructed his 60 researchers to more thoroughly examine vendors' existing inventories and the specific price discounts demanded by procurement managers. But even with his new rigor, Mr. Ryan concedes, "We're all riding this massive storm, and no really knows where we're going." [DENNIS K. BERMAN, WALL STREET JOURNAL, Jul 9] Note that the same conservative smaller government Republicans who howl against regulations and taxes want exact and complete government data. Good government is that part from which you are the beneficiary. Charles I of England discovered the importance of accuracy and impartiality the hard way. In the 1640s, he tried to boost tax revenues by decreasing the volume of a liquid measure called a jack while keeping the tax on the jack the same. That meant his subjects got fewer sips for their tax dollars, and the move led, according to some interpretations, to a protest chant dubbed "Jack and Jill." A hill was mounted, a pail was fetched, but disaster ensued: "Jack fell down." Since two jacks equaled one gill, the poor girl "came tumbling after." This type of arbitrary taxation, along with absolutist religious policies, led to a civil war, which Charles lost. "He broke his crown" in 1649 - which is to say he was beheaded. [Brian Alexander, Wired. June 01] Venture capital is going green. A decade ago, a tiny niche dubbed ''environmental investing'' couldn't capture serious money minds for a nanosecond. But that sector has emerged as more high-tech and more pressing, and apparently with real profit potential. It's now called ''energy investing.'' And it's hot for a lot of good reasons. The trend is bigger than the California blackouts. On a grand scale, it's about rebuilding the nation's power distribution system to make it more efficient and reliable. On a micro level, it means ensuring blips don't interrupt the hurricane of data zooming around the world on the Internet. It means harnessing wasted energy in power plants and cars. And it calls for new software and wireless devices that let businesses and individuals save money by better using energy. ... Now the economy's slowing and people have to heat and cool those giant houses. They're filling the tanks of those gas gluttons at $2 a gallon-plus. If they live in California, they sometimes wonder if the lights will come on. At work, they have to worry about things like where to put that next data-storage warehouse. ... Venture Economics predicts energy-related businesses could attract as much as $1 billion in venture capital and other private funds this year. That's up from $218 million invested in 1999 ... [Beth Healy, Boston Globe, Jul 2]   Wins in Japan do not absolve Transmeta of its forecasting or inventory missteps. However, it is far too early to write off this company; it has carefully and successfully worked its way into one market that continues to validate its technology. Winning the U.S. will be difficult -- the strength of Intel's relationships with PC companies here remains a massive barrier -- but since a lot of notebook engineering comes from Japan, we cannot discount the importance of Transmeta's East-facing strategy. [redherring.com, Jun 29] Transmeta is a classic case of great innovation failing market acceptance. The better mousetrap that fails the cost-effectiveness advantage test. When Anthony and Michael Perkins penned their book, ``The Internet Bubble,'' they hit the bull's-eye. If we'd only listened! The book, published in 1999, concluded with one command: ``Sell Now!'' It packed a powerful punch, explaining that history and basic math showed technology stocks were on average about 50 percent overvalued -- exactly right based on the time they wrote the book. So when a copy of the ``revised edition'' of their book showed up in the mail last week, I was interested in what they are saying now. (The book is being sold by Amazon.com and Barnes & Noble but will hit store shelves in September.) The value of the revised book lies in its encouraging assessment of the future. (Although it does have a scooplet -- an eye-opening example of how even a top Sand Hill Road venture firm, Sequoia Capital, was drawn into the mania despite knowing better.) But the book's main message is about ``a massive opportunity'' to build out the next generation of the Web -- the same message sent by entrepreneurs and venture capitalists in recent months, but it carries more credibility coming from authors who called the crash. [Matt Marshall, San Jose Mercury News, Jun 29] In early 2001, caapital spending slipped to 2% and IT growth rate fell to -2%. The gllomsters take on this is that too many firms spent too much money on too much technology, creating a glut of overcapacity that will take years to work through. According to the naysyaers, the whole New Paradigm construct was a chimera, a temporary event that occured druing the recent sweet spot of the economic cycle. They say we are consigned to an extended period of sluggish economy. [Jeffrey Applegate, Bloomberg Personal Finance, Jul01] Applegate's piece goes on the contradict the gloom in the words of the chief strategist at Lehman Brothers. R&D at Agilent It's our lifeblood. We spend about 12% of revenue on R&D and about 8% of that on central research. And about 70% of our revenue comes from products introduced in the last three years. [Ned Barnholt, CEO Agilent, Upside, July 01]   Why 1929 Is Not Coming Again 1) Europe's not collapsing, 2) banking is national, 3) FDIC, 4) many fewer margin stock buyers, 5) no rigid gold standard, 6) gradual economy shift. Says Upside editor Jerry Borrell. Lessons in Survival 1) Pick whom you want to work with, 2) IP has value, 3) time to market is king, 4) distribution and slaes are everything, 5) take on partners, 6) keep your business plan fluid, 7) life is a work of art. Steve James, retired on a Caribbean Island. We're at the edge of a new explosion of knowledge. The rise of instrumentation, the rise of supercomputers, et cetera, the sheer scale of scientific activity on the planet, the degree to which it's now being brought together in real time by the Internet, the minimum change, in my judgment - this is a historic judgment we can argue about. My judgment is the minimum change in the next 25 years will be equal to the entire 20th century. And I say this to every audience. That is, if you go to 1900, no motion picture, no aircraft, no television, no mass-produced car, and you come to the year 2000, that's about the scale of change in the next 25 years. And if anything, that's on the low side. It may be bigger. Now that's very important, because the truth is, our psychological attitude is, that we are coasting at the peak of our success, not we're launching a new race. And it's exactly wrong. Exactly. You read stories, the human genome project has been completed. Utter, total nonsense. Being told you've mastered the alphabet at the foot of the Library of Congress suggests you have a lot of reading to do. [Newt Gingrich, May 01] Too much capital can wipe out any good innovation. The innovation is there, but instead of a normal absorption curve, everything got absorbed at once by people and companies funded for specious reasons. The financial pipeline for new young companies and innovations has disappeared, and as a result large companies don't move as quickly any more. They reorder their priorities. New stuff is flushed out because corporate earnings everywhere are poor, and companies are protecting their P&L [profit and loss] statements. So you get the double whammy of unnecessary companies spending unnecessary dollars. [Art Samberg, Barron's, June 25]   Avoid, he says, "anything in telecom equipment." Those stocks are still trading on too much optimism, he says. Take Tellium, a startup optical switch company that went public in May at $15. The shares shot to $29.73 and a market value of $3.2B even though Tellium has only three customers.... Speculation like that seen with dot-com stocks thrives now among alternative-energy issues. Shares of FuelCell Energy (FCEL ) recently traded at a market capitalization of $1.2 billion despite the fact that the 32-year-old company has no earnings and has made sales for trial use only. Indeed, the company won't make an annual profit before 2004, and then only $20 million on $420 million in revenues, according to a bull on the stock, Sanjay Shrestha of FAC/Equities. The company's chief financial officer, Joseph Mahler, says buyers of the stock understand that the company will be making a lot more money by 2006. Its fuel cells are an answer to industry's need for clean, on-site power, he says. The cells make electricity from natural gas without the smoke from combustion. Shorts say that even if the technology works, which they doubt, the stock will crater before the company ramps up production. [David Henry, Business Week, July 2] ... in virtually every generation, new technologies have arisen that promised to transform the way Americans conducted business, exchanged information and entertained themselves. Each inspired an exuberant investment boom, which led to a glut of capacity, ruinous competition, falling prices for consumers and, ultimately, bankruptcies and consolidation. Most competitors contributed to a technological transformation while failing as short-term investments. Today's boom and bust is merely the latest in a series that have characterized America's phenomenal economic and technological development. The difference? In today's 24-7 environment, the rags-to-riches-to- rags cycle is shorter than ever before. And with the democratized markets, the damage caused by failing investments may be more widespread. [Daniel Gross, New York Times, Jun 20]   "there are going to be layoffs." 75% of the start-up's 40-person staff received pink slips. Five weeks later, Ereo closed its doors for good. ... [A] millionaire, Pete Estler, gave life to the start-up, and like a pied piper, brought together a diverse team of people from across the country. ... Ereo, like so many other technology start-ups back then, set out to change the world. Even as the markets crumbled around them, Ereo's people believed that their company was immune to the dot-com plague. Many came to Ereo because of Estler - a charismatic entrepreneur who provided the vision, the cash and the confidence to get started. He sold his last company for $90M and promised to build 45 start-ups by the end of 2000 with his venture fund iBelay. ...Including Ereo, four of iBelay's portfolio companies have folded, ... All total, Estler put $6M into keeping Ereo alive. Then he gave up. ... For months, Ereo raced to build a search engine that could sort and find images on the Web and eventually allow people to shop and compare products. It was an ambitious goal toward technology that has stumped academic researchers for years. The problem lies in the fact that computers can't see and distinguish images the way human brains can. Computers "see" only piles of numbers. "It's very much an unsolved problem," said Daniel Lee, a researcher at Lucent Technologies' Bell Labs. He's been studying for two years the issue of computer vision. And because Ereo's product was technical, the company fought a growing cultural battle between the engineers who created the product and the people who sold it. In the beginning, the software programmers joked that they were the "real people at Ereo," and they spoke in technical terms that left outsiders feeling like visitors to a foreign country. [Jennifer Beauprez, Denver Post, June 18] Would SBIR have saved Ereo? Maybe, but not 40 people. The government can usually be induced to "invest" in such technology, often for a long time. A champion in government can usually influence his agency, especially one like DOD, that the technology is a must-have. Government, though, typically explores such technology with academics rather than small business. This is a classic case of small business being no better than academia at the technology but better able to bring a technical success to market. Still, lots of SBIR overseers don't accept that view, and since they have to put their SBIR money somewhere, they will pursue the sweet technology in a small business anyway.   "Most entrepreneurs bet their life savings, beg and borrow from family and friends to start the company that is going to 'change the world.' Then they work 80-hour weeks, forsake their families, and pay themselves minimum wages. After fighting the odds, to have VC's end up with 90 percent or more of their companies, and then to get booted out in favor of a more 'experienced manager,' is quite a tragedy. Unfortunately, with this economic downturn, this is happening everywhere. Most entrepreneurs are in a total state of shock." [Charles Davidson, Digital South, Apr 26] Company owners who feel injustice at the workings of capitalism haven't yet accepted the nature of capitalism. They want the best of both worlds: the right to own their own business and the right to enjoy the fruits of their thinking without regard to who is taking a big financial risk. Take heart dreamers, the politicians tell you they can have both wants - just sign up for SBIR. If you believe that SBIR will turn a hobby into a well-capitalized profitable business, you are just what the politicians are looking for. Sign up now so the politicians can pretend that they saved small business from the grip of greedy capitalists - the same capitalists to whom the politicians appeal for campaign contributions. Innovations in Weather. In my first job out of college, I covered commodities.Coffee, cocoa, sugar, and orange juice. The best part of the job was the weather: frost in Brazil sent coffee prices ballistic. So we had our own weather guy. The more accurate his forecasts, the better our coverage. CustomWeather, a San Francisco startup, thinks it can do even better, and without meteorologists. "Humans make errors, but computers, if you program them right, shouldn't," says CEO Geoff Flint. The economics of a meteorologist-free weather business are compelling. The data is free. And while all online weather companies -- each private and profitable, by the way -- use that government-supplied data, few if any of them fully automate its interpretation. Mr. Flint, a meteorologist and programmer, took the best weather forecasting models and programmed them to gather government data automatically and deliver the weather for 58,000 cities around the world. The service is being marketed for syndication on sites and wireless devices; another market is business process applications, like transportation, in which weather plays a big factor. The barrier to entry is seemingly low. But competitor AccuWeather employs 400 meteorologists for its site alone. CustomWeather's burn is only $60,000 per month, it has revenues, and it's scalable. [redherring.com, Jun 18] Got a problem? Too much data and too little information? Use a computer. Where have we heard that before? It is true that whoever does weather forecasts best will have a lot of business from commodities traders. Military tacticians should want it also although the military way of procuring services doesn't always get the best competitor. Are Investors Jumping the Gun? Liquidity turned positive, at $2.5B, as the new offering calendar took last week off. .. However, this week CommScan tells us there are over $9B of new offerings already scheduled, including the Kraft IPO. ....Given how weak liquidity has been over the past six weeks, the fact that the TrimTabs Market Cap Index of all U.S. stocks is still up 4.1% says one of two things. Either sideline cash was been drawn down dramatically in May, or there is a new source of liquidity. Since UBS Warburg tells us that foreigners have not been heavy buyers of U.S. equities recently, our bet is that sideline cash is shrinking, which, if accurate, is a very bearish indicator. [Charles Biderman, TrimTabs.com, June 14] Cymer, a supplier of excimer light sources used in semiconductor manufacturing, has announced an approximate 9% reduction in its worldwide work force as part of its previously announced cost-reduction program.   Triage Means Downvalue The language of venture capitalists these days goes like this: They are "triaging" their investments, "baby-sitting" their portfolio companies and "pre-money valuations are down." Translation: Your company is not worth as much as you think it is. The region's venture capital industry, which fueled the tech boom of the past several years, has not come to a grinding halt, but new investments will continue to be rare in the next six months, according to a survey released May 18 by the Mid-Atlantic Venture Association (http://www.mava.org). The study says venture capitalists are spending only about a quarter of their time and money on new deals. [Martin Kady II and Roger Hughlett, Baltimore Business Journal, Jun 4] Bob Davis, the former boss of the former Lycos, stood in front of a ballroom full of ground troops in what is too often called the Internet revolution and, in an indirect way, told them to knock it off. "To me, it's all hogwash," Davis told those gathered at a recent meeting of the Massachusetts Software and Internet Council at the Boston Marriott Copley Place. "This is not about a new economy. This is about a new medium." The Internet, Davis told the audience, is a form of communication different from television and print only in that it caught on faster. It's not changing the world. It's not changing the fundamental laws of capitalism. Hearing Davis lay out his case, it wouldn't be unreasonable to wonder if some in the room heard an irritating, now-he-tells-us buzzing sound in their ears. Some of his listeners no doubt want to capture a slice of the dot-com success, or at least the glory, that Davis enjoys. If some are thinking they'll catch the next big wave, Davis has other ideas. In his view, the Internet business wave has crested, crashed and moved out to sea. [Phil Sweeney, Boston Business Journal, Jun 4]   The inescapable if unpretty fact is that we're in the grip of a recession -- oh, okay, call it a slowdown, if it makes you feel better -- brought on by an orgy of capital spending. We haven't had one of these nasty numbers for a heck of a long while, but they do tend to hang on for quite a spell and their aftereffects linger even longer. What he bluntly calls the "bust" in capital investment is the focus of an extraordinarily well-wrought and compelling piece on the economic outlook by William Dudley of Goldman Sachs. The tenor and conclusions are not notably upbeat. Not surprisingly, he locates the sore spot in the capital investment bust in the information and communications technology sector, and dutifully points out that the markets have hardly been unmindful of this, as illustrated by the calamitous fall of the technology stocks. But he also points out that longer-term, the bust in technology capital investment has significant negative implications, for both productivity and investors, that have not been universally recognized. [Alan Abelson, Barron's, Jun 4] There are still billions of dollars out there on the sidelines looking for cutting-edge technology companies. Of course, plenty of venture capitalists are preoccupied with tidying up the messes they made during the past few years. Indeed, while often not admitting to it in public, many venture firms are marking their funds down to zero, meaning they are essentially declaring to their investors that they blew all of their dough with little to show for it.And if they aren't folding their tents, they are frantically performing triage on those portfolio companies showing signs of a pulse. That means too many VCs are now actively running the day-to-day operations of their bubble-era investments instead of beating the bushes for the next new thing. Gregor Mendel and His Peas. Gregor Mendel was a man of ability. His Experiments in Plant Hybridization (published 1865 and available at this link) laid the foundation of the science of genetics; its predictions based on observation are astounding given the state of chemical microbiology in that day (state = zero point). The results of Mendel's efforts can be directly traced to the recent, complete sequencing of the human genome, and exemplify: (1) The ability of a determined scientist to care for hundreds of pea plants over two years in controlled conditions and meticulously document their characteristics. (2) The ability of reason to overcome speculation, randomness and unknowable causes. (3) The ability of a religious man to have a serious commitment to science. (4) The ability of mathematics to overcome all other branches of science. (5) The ability of a man's neighbors to put up with seemingly mad experiments. (6) The ability of a science teacher to continue teaching without having ever passed the teachers' licensing exam. (7) The ability of peas to be distasteful to children both on their plate and in their science textbooks. (8) The ability of monks and the Web to preserve important historical documents. (9) The ability of translator to transform a German technical paper into sensible English. Mendel's Paper: http://www.netspace.org/MendelWeb/Mendel.html Java applets: http://www.execulink.com/~ekimmel/mendel1a.htm [ Netsurfer Science] The Lobster Lure. Efforts to lure jobs away from Silicon Valley have taken a new and possibly frightening turn. The state of Maine is now employing lobsters to do the job. Maine, one of several distant principalities targeting the valley, is offering a complete lobster dinner for two to any executives who spend 30 minutes with representatives of Maine & Co, the private, nonprofit organization that markets Maine to the business world. The Pine Tree State is FedExing live lobsters wrapped in seaweed to executives from 10 companies that met with Maine & Co. representatives who visited the valley the week of May 14, says Marketing Director Cathy Evers. That's down from 55 a year ago and 12 in January. [Timothy Roberts, San Jose Business Journal, May 29]   America is a country where the minute one person stands up and says, "That's impossible," someone else walks in the door and announces, "We just did it." [Tom Friedman, "The Lexus and the Olive Tree"] Can Lucent survive? Will Nortel claw back from being down 80+% in the last months? Will SBIR photonics companies see their strategic partners (those who have strategic partners) lose interest in the exciting new gizmos? The global semiconductor market will likely shrink 13.5 percent in 2001 to $176.79 billion because of sluggish demand for PCs and cell phones, the World Semiconductor Trade Statistics group said Monday. [San Jose Mercury] ... industry utilization rates decreased 9.1% to 83.7% from 92.8%, the greatest decrease since the SIA began keeping records of industry utilization in the second quarter of 1994. At 83.7%, utilization rates stand just 2.9% away from the all-time lows of 80.8% seen in the third quarter of 1998, [Multex Investor] Tech Revolution? Yawn. Sunday's New York Times business page showed a chart of the week's indifference to the prospects of Kopin. After a jump Monday in response to a claim that Kopin's new carbon-doped InP transistors would provide clearer signals and would use less power in mnobile phones. Why only a two-day response? Could it that the markets are tired of such claims? Or is that Kopin never seems to make a profit from its many innovations? Even though such advances may be good for the economy and for the industry, it will not help the stock prices of a company that cannot exploit them for a huge profit. Technical adroitness is NOT enough for real markets (even though it is often enough for government programs like SBIR which are run by people with no stake in those markets beyond their conservative retirement portfolios).   Previous booms didn't make venture capitalists think they were God's viceroys to the universe. The VCs in the past wouldn't have dreamed of taking a 35 percent carry [the VCs' cut of the profits from one of their funds]. Now it's common. Two-billion-dollar funds and 35 percent carries! Where is Tom Wolfe when we need him? His Masters of the Universe were pathetic children compared with these people.... ... In the 1980s, our existing core business - memory chips - was in disarray. We were putting about 40 percent of our developmental capital spending into a business that represented only 3 to 4 percent of our revenue and in which we had a market share of 3 to 4 percent. There was nothing wrong with that business in terms of growth potential, but we had become marginalized by our Japanese competitors. There really was no viable option for us to work our way out. We had a situation where the defining business of the company had hit not a pothole but an ultimate wall, and we had to make a very desperate move. [Andy Grove, Wired, June 01] high-tech entrepreneurs in Silicon Valley always like to compare their supercompetitive business to the story about the lion and the gazelle in the jungle. Every night the lion goes to sleep in the jungle knowing that in the morning when the sun comes up, if it cannot outrun the slowest gazelle, it will go hungry. Every night the gazelle goes to sleep knowing that in the morning, when the sun comes up, if it cannot outrun the fastest lion, it's going to be somebody's breakfast. But the one thing that the lion and the gazelle both know when they go to sleep is that in the morning when the sun comes up, they better start running. [Tom Friedman, The Lexus and the Olive Tree] ...what I once called The First Law of New Technology: "nobody wants to be the first to buy it." Customers were alike in these ways: 1) They don't want to buy a product, they want to hire a service -- a service which just happens to be performed primarily by the product. 2) They don't want to be a Guinea pig for new technology; they want the product to have been thoroughly tested. 3) They don't want to bear the aftermath of failure -- they don't even want to bear the aftermath of success! (For instance, waste disposal after the product works.) [Ron Graham, rgraham@tcnj.edu] Innovation may seem a far-fetched goal for companies that are slashing operating costs and jobs these days. Creative ideas, after all, usually spring from people who feel confident enough to think originally and to risk exploring something that may flop. That mix of playfulness, passion and sheer perseverance may be difficult to muster in employees who are worried about job security, or who are being told to make do with fewer resources. Under pressure from investors to keep their companies' stock prices high, chief executives typically react to economic slumps by strategizing how much and how quickly they can cut costs. Many expenses can't be easily eliminated, so executives instead slash budgets for variables such as research, product development, new technology and advertising. Yet savvy executives believe they can't afford not to continue innovating through a slowdown. They figure if they cut spending for research, for example, they will crimp their companies' long-term growth. They realize that slowdowns provide unique opportunities to beat out rivals. ... That's a recipe Intel is following. Demand for Intel products, from processors to flash memory chips and networking chips, has been weak in recent months ... Steep competition and a slump in spending for information technology is forcing Intel to lower prices. ...Yet Intel is biting the bullet and boosting spending for research and development to $4.2B this year from $3.8B in 2000, while also spending $7.5B to build manufacturing plants, Intel's cash reserves of nearly $11 billion are "making it easier [CAROL HYMOWITZ, Wall Street Journal, May 22] entrepreneurs are in a total state of shock. Be suspicious. Is anyone in the technology business having fun any more? Is there middle ground between the mania of '99 and the gloom of '01? Of course there is. Some say the atmosphere for starting and nurturing companies is back to normal, that it just doesn't seem normal after a couple years when everyone was drunk with optimism. Some don't say that. To wit, I got an email recently from a prominent entrepreneur in the Research Triangle Park area: "Most entrepreneurs bet their life savings, beg and borrow from family and friends to start the company that is going to 'change the world.' Then they work 80-hour weeks, forsake their families, and pay themselves minimum wages. After fighting the odds, to have VC's end up with 90 percent or more of their companies, and then to get booted out in favor of a more 'experienced manager,' is quite a tragedy. Unfortunately, with this economic downturn, this is happening everywhere. Most entrepreneurs are in a total state of shock." [Charles Davidson, Digital South, Apr 26,01] If young people are the big winners during boom times, it is veterans who make out best during the busts. Why? Because they have perspective. Because they don't lose their heads. And because no one is smart enough to ask for their advice. ... [Says TJ Rodgers] What makes us special and different here is that we're truly capitalists. We invest. There is no safety net. You can go out of business. There are companies you can count them on both [hands] every day that go out of business, and that's life. ... [Nolan Bushnell says] My dad would always say that the minute you think that the sun is shining out of your rear, all you have is an illuminated landing area. [M Malone, Forbes ASAP, May 20,01]   Watch out for Finland. All advanced economies - and some emerging ones - are moving into the space once dominated by the US. says a report for the Council on Competitiveness co-authored by Michael Porter. The authors want the government to expand the national capacity for innovation which translates to more government R&D spending and more technically trained workers. [story from Vince Kiernan, Laser Focus World, May 01] ... Well, sure, government can spend on R&D, but who will evaluate its effectiveness? The same politicians who push money to constituent groups? Look what porridge they have made of SBIR. And education rises from the home, not from the government. More Siligloom. After an unprecedented five-year boom, Silicon Valley is now slipping into its sharpest recession since the early 1990s, one that could bog down the economy for the rest of the year. That's the best estimate of economists who are watching how the national slowdown is hitting the high-tech industries in Santa Clara County particularly hard. ``Whether we have a national recession or not, we have one in Silicon Valley,'' agrees Ken Rosen, chair of the Fisher Center for Real Estate at UC Berkeley. ``It could last from six months to two years.'' ... A glut of commercial office space is developing as companies find they have leased space they can't use ... sales of new cars and trucks in Santa Clara County are down 17% ... Increasing power costs, higher gas prices ... [But] new businesses up 28% since January ... Construction permits in Santa Clara County for commercial office space 33% higher , [San Jose Merc News, May 18] If SV economics is no longer straight up to the sky, would they abandon their free market hype and ask for a government subsidy? The Dow first reached the 100 level in January 1906. It traded above and below that level for more than 36 years; it wasn't until May 1942 that the market left 100 behind for the last time. The Industrial Average first reached 1000 in February 1966. It traded above and below that level for the next 17 years, leaving that figure behind for the last time in February 1983. The Dow first reached the 10,000 level in March 1999. Considering the unprecedented gains of the past several years, would it be that unusual for this benchmark to take a decade or even two before leaving 10,000 in the dust for the last time? [Daniel Turov, Barron's, May 21] If the Dow and the NASDAQ don't rise substantially, where will the money and enthusiasm come from for venture investments in new technology? The government? The government doesn't really do much of that; instead, it funds basic science and incremental improvements in its present inventory. Just a year ago, everything was rosy: GDP was growing at 7%, Internet stocks were hot and the Dow was going to 100,000. The economy, consumers and the stock market were awash in giddy optimism. Now, bullish tech investors have turned into mad cows. What's my answer? buy tech stocks. [Marc Robins, Forbes, Apr 16] For what it's worth, Robins recommends the following speculations: Avocent, BSquare, Carreker, Oak Technology.   Prosperity financed with speculative capital must sooner or later hit the wall of arithmetic. Presented with ultracheap funds, entrepreneurs build and then overbuild, Before very long there is a surplus of fixed investment. Businesspeople are especially prone to an excess of enthusiasm if they believe - as many did in recent years - that economic cycles went out with the slide rule. ... ... recession is that season in the economic calendar when investment mistakes are re-priced and reprocessed, a joyless but necessary time. How necessary? Consider that Japan spent the 1990s refusing to confront its errors of the 1980s. The only thing worse than a bad recession is none at all. [James Grant, Forbes, Feb 19,01]   Hot Opportunity If nothing is done to rethink chip design, the most powerful microprocessors could be consuming more than 1,000 watts by 2004. "If it's business as usual, we wind up frying eggs" with microprocessors, says Dennis Monticelli, a Fellow with National Semiconductor in Santa Clara, Calif. Many of these problems could occur within two chip generations, about four years from now. Since it takes about two years and more than $1.5billion to build a new semiconductor factory, chipmakers are rolling some expensive dice betting researchers will find solutions in time. ... ... New cooling tricks are starting to emerge. In late February the fledgling Incep Technologies (San Diego, CA) introduced a technique for packaging together a microprocessor, a logic board for regulating power to the chip and a heat sink. Even though such "encapsulation" could cost $200 per unit, Incep President James Kaskade contends that it both cools the chips and saves space inside the box. Isonics (Golden, CO), a maker of specialty materials and chemicals, is proposing a new material:a "purer" version of silicon called Si-28, which channels out heat better than conventional silicon. The silicon in typical wafers is a blend of three silicon isotopes. Sifted down to just the Si28 isotope, Isonics' wafer conducts heat better. [Elizabeth Corcoran, Forbes, 04.02.01] Suddenly tech is a wreck: Cisco and Sun are missing sales targets, inventories are climbing and share prices are falling faster than the Mir space station. Businesses are doing what they always do in a slowdown slamming the brakes on spending. Don't starve things digital. Prices are low and people come cheaper. Step on the gas, says GE's Jack Welch. That is welcome news to General Electric's Chairman Welch. While everybody else pinches pennies, lays off technology staff and delays purchases of computer gear, Welch and his crew plunge ahead with an Internet buildout, hoping to steal a march on rivals. Pursuing Welch's vision of "digitizing" every aspect of the company, GE's 7,000 tech staffers are coding up dozens of new applications, fueling demand for more PCs, servers, storage and network routers. GE will spend $3 billion on high tech this year, up 12%, three times the rise projected for IT overall. "Two years ago we would never be doing this,"admits Gary Reiner, GE's chief information officer. "We would have been cutting IT just like everybody else. Tech was the first thing we'd cut. But things have changed here." Welch, in one of his last ma