Skipper Sees Another Year of 'Tough Sledding' for Big Tech

And now, the bad news on technology.

In the first part of this week's 10 Questions, tech investor Roger McNamee sounded a positive note on many areas of consumer-oriented technology. In Part II, McNamee, the co-founder of Integral Capital Partners and Silver Lake Partners, discusses technology companies that primarily serve corporate America. His outlook for 2003 and beyond isn't exactly rosy: McNamee doesn't see IT spending picking up, and he expects the Nasdaq to trail the S&P 500 this year.

Nonetheless, McNamee does find a few stocks worth buying, including Cisco (CSCO) and Microsoft (MSFT). For a better understanding of the tech environment, read on.

1. OK, let's talk about the enterprise side. You haven't sounded many cheery notes on this area. What do you envision going forward?

Well, I wanted to start with the positives, so I focused on consumer stuff. (Laughs.)

The enterprise side we'll start with something positive, also. The difference between January 2002 and January 2003 is that a year ago, there were a huge number of companies that were committed to the notion that the bad news they saw everywhere around them was merely a blip down in an otherwise upward trend. In short, they were expecting some kind of return to the late 1990s, which they perceived as normal.

Roger McNamee Co-founder of Integral Capital Partners and Silver Lake Partners

Today, I don't think there's anybody who believes that. Everyone has recalibrated their business using the current environment as a new baseline. Although cost structures are not uniformly in line with the current level of business, people are committed to getting there. This is a huge change.

If you want to understand why there were so many upside earnings surprises in the September quarter, all you need to know is that the largest companies were the ones that started making those rightsizing changes first. Wall Street's estimates for the quarter were based on spreadsheets. Spreadsheets just don't do a good job of capturing cost-structure subtleties, where very small favorable variances in revenue produce huge changes in profitability.

September earnings were terrible, right? But they weren't as bad as Wall Street expected, particularly on a market capitalization-weighted basis. And that's a huge deal.