SiliconStreet.com
Finding the New Tech Gorillas in Our Midst
03/26/01 - 07:59 AM EST
For a brief shining moment, Geoffrey Moore got it right. The famed consultant realized eons ago -- in January 1999 -- that investing in so-called Internet companies wasn't sustainable. "I do not think (Internet stocks) can be called investments at this time," Moore told his clients then, and I duly reported his thoughts in my San Jose Mercury News column. "An investment is something you would want to hold for 10 years, say. I don't think many people would be comfortable with eBay EBAY as the foundation of their retirement plan."
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Paper Profits
You'd think the paperless office would have dealt a body blow to the printer business, but it hasn't. Folks still like to print out the documents they read on screen. And digital cameras promise to give the printer industry its next leg up as Grandma and Grandpa in those cute Microsoft promotional videos rush to "publish" the photos of their grandkids sent over the Internet. In fact, printers are so much in demand that market leader Hewlett-PackardHWP is getting into the business of making the sub-$100 variety. That's an inexpensive printer, so inexpensive that Credit Suisse First Boston analyst Gibboney Huske thinks HP is interested in the market more for the "consumables" (that's cartridges to you and me) customers will buy rather than the printers themselves. Huske -- who has been correct of late on the direction of shares of Xerox XRX (down) and Adobe Systems ADBE (up) -- sees HP's move into the sub-$100 category as the beginning of a price war in printers, and she notes that price wars seldom are good for any of the participants. The focus, then, isn't on the aggressor, HP, which has its own problems, but on low-end stalwart Lexmark InternationalLXK, whose hide HP is targeting. "Having lived through the Kodak/Fuji film pricing war of 1997-1999, experience tells us that investor sentiment is likely to deteriorate as ongoing pricing and promotion actions move the market out of an equilibrium state where price/performance curves are well known and stable," Huske told clients in early march. On Friday, she said she remains convinced of the brutality of the impending price war and that unfortunately for shareholders of Lexmark, the effects are not priced into the Lexington, Ky.-based company's stock. In fact, Lexmark's shares are up 9% this year, having closed Friday at $48.20. Huske estimates the company will earn about $331 million, for $2.60 per share, in 2001, about a dime per share less than the Wall Street consensus forecast, according to Multex.com. Noting that inkjet printers don't make money for Lexmark, Huske doesn't think a volume decline would hurt Lexmark's earnings this year. But she is worried the company won't be able to hit her projection of 11% year-over-year revenue growth to $4.2 billion. Huske's forecast already is below Wall Street's average call for about 15% revenue growth for Lexmark. There is no obligation for investors to go along for the ride during a price war. You just know somebody's going to get hurt.
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