Email to the Editors, Nov. 2000

Author:
Publish date:

TheStreet.com publishes selected emails received by the publication and its staff members. To send an email intended for publication in this section, write to letters@thestreet.com and include your full name and city. Letters may be edited for length, style, clarity and accuracy.

Intel's Possible Future

Herb Greenberg

: About

Will Intel Wind Up Being Just Another Company?

First off, the PC in the United States is quickly reaching saturation. My sister and I are buying a PC for my mom this Christmas even. We have eight in my house. My sister only has two (we're both real software developers). Now then this situation has been developing because we're on the cusp between two technological trends: The old trend was based on the desktop (the notepad is an extension) computer and the upcoming pervasive computing world.

In the old desktop, users sat down at a desk to communicate with the computer. This is a paradigm based on the typewriter continued by Von Neumann and running through mainframes, minis and PCs.

IBM

(IBM) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

were the titans created by this market.

In pervasive computing, the intelligent device comes to the user. We, as of yet don't know who's going to control this market, we know that neither IBM nor Microsoft will control it, but Intel will surely have a hand on it. I would not assume that Intel is gone because of the PC market maturation. The use of home computing devices (HCDs as opposed to PCs) and PDA like network appliances will grow in the next 10 years. In a decade we'll look back in wonder at this time when so many lacked the imagination to foresee the technological explosion that wireless, broadband pervasive computing would bring forth. I figure Intel will be much larger than it is today, but I don't know if it will be as significant within a vastly larger, more complex market. It will be interesting to wait and see.

By the way, great

call on

Lernout

(LHSP)

. I do remember you on it as early as last year or something like that.

-- Antonio Esporma

(received 11/30)

An Apple for the New Biotech Teacher

Lissa Morgenthaler

: About

For Biotech, This Time It's Different

I just wanted to say what a pleasure it has been reading you since you joined the site. You are a breath of fresh air. My only complaint is that you seem to see eye-to-eye with goateed technical types, but I guess

Gary (B. Smith)

deserves his due.

You mentioned that you are not writing for

RealMoney.com

for the money. It got me to thinking about the numerous financial sites and TV shows that sprung up over the last two years. I can't help but think that we are going to see the rapid shutdown of most of them. They have already lost the quality journalists, and none seem to have the continual input of pros like

TSC

. It just demonstrates the quality of

RealMoney.com

and

TSC

. In dangerous times like these,

TSC

is all the more important to the readers. Thanks.

-- Scott Womack

(received 11/30)

Microsoft Doesn't Lead the Tech Pack

Don Luskin

: About

The Implications Beyond Microsoft

Though I, too, believe that

Microsoft

(MSFT) - Get Report

will win its appeal with the U.S. government, I don't believe the hype, that as Mister Softee goes, so goes most of technology.

There are a few of reasons I don't believe this. First, to call Microsoft an innovative company seems to be a misnomer. When exactly was the last time Microsoft put out a seriously upgraded, totally capable, nonsloppy coded software package? It sure wasn't Windows M Edition. (Though Office 2001 for the Macintosh is almost perfect, I'll admit.)

Second, to believe that Microsoft has the domination that it once had in the marketplace is to disavow the tremendous gains made recently by other companies. Can we say Red Hat? Can we say iMac and OS X? Small inroads to be sure.

Third, let us look at the broader spectrum: Would we be better off if we still had an independent Netscape, one that wasn't forced to sell its soul to

America Online

(AOL)

because MS could afford to give Explorer away for free? Would we be better off if AppleWorks 6, a sleek and fast Win/Mac compatible suite of programs was recognized for the great coding and the efficiency that it has as a result? Could Opera, a great little up and coming email client, have a chance to become a viable alternative to MS Explorer? Would Corel still exist as an extremely profitable endeavor for the Canadians? And let's not forget the struggling little BeOS.

If we had true competition in the OS/Application marketplace, we could add perhaps a 15% profit margin to each of these "fringe" companies (Apple, Opera, Red Hat, BeOS, Corel). Wouldn't we, as consumers

and

investors, be better off than we are currently? If the true competition that spurs the marketplace were in place, the broader market value of these companies would be higher, and there would be a much better return on investments (including new and innovative products, too).

Certainly, Microsoft winning the appeal will give the market a boost, but only a short one. I'd prefer to see some serious longer-term growth from a plethora of smaller innovative companies (if we could just get the Microsoft Goliath out of the way).

-- Andrew Herrmann

(received 11/26)

Snowed In and Wireless

Carolyn Koo

: About

Nokia Targets Handset Replacement Market With New Product Features

With the crushing supply of negative news available to any tech investor, I`d like to offer a tiny report from the great Snow Belt on cell phone sales.

It seems, despite the glowing reports of how Buffalo residents handled the most recent surprise snow event, emergency services were woefully unprepared and inadequate. The mayor requested everyone stuck in the city (and suburbs) wide traffic gridlock event to stay in their cars- and not to abandon them- even though there was apparently no relief on the way. The only people who didn't go insane were the half who had cell phones (and who could get through).

The other half appear to have marched to the mall this weekend to subscribe to their own service before the next storm. It may (I haven`t done any surveys) be the best selling gift this season.

There is also a service available for parents to track the location of the bus their children use- I wonder if the salesmen have been in contact with the local schools yet.

-- Deb Wolf

(received 11/26)

Black Gold Doesn't Look Like Tarnishing

Christopher Edmonds

: About

Time to Be Thankful and Take Gains in Energy Stocks?

If it weren't for my energy holdings I'd be at the bottom of the ocean instead of treading water slightly below the surface. Yes, the oil and gas stocks have paused, and all the ones I trade and now hold are at about 10% below this year's high. But they are the only ones with sure earnings going forward even if a recession lands on our shores, even if oil drops to $25 and an equivalent gas price drop hits the market.

I have sold them on gaps and lightened up this week, but a winning strategy has been to buy the dips; and I'm hoping for one again, but an old trader saw, "When you hope, you're dead" leads me to believe they're going higher. With all the gurus talking about the downside, and we all have our opinions of the "learned" crowd, I'm wagering that prices remain firm with the surprise being to the upside.

In today's markets, nothing is going right, politically, telecoms, retail, tech, autos, the list goes on and on, so why should energy prices cooperate and go down? The demand is there and I don't see the reason for its slackening a great deal. The trend is your friend, it's still up, and you can be sure that the oil companies will prolong and enjoy firm prices as long as possible.

Time will tell.

-- Fred Berliner

(received 11/23)

I'm a Pundit, You're a Pundit, Wouldn't You Like to Be a Pundit, Too?

Aaron Task

: About

Where's the Brake on This Thing? Trying to Stop the Market's Skid

I'm writing in response to the article written by Aaron L. Task on Nov. 21. In it, he mentioned some kind words about Don Hays. I must respond that I have lost a significant amount of money following his "Doom and Gloom" preaching. What he is saying today is what he said for at least the past three years. In other words, during the bull market of the decade, he advised sitting on the sideline -- because the big one was about to hit.

So while it looks like he is correct now, my concern is that other naive people will falsely believe that because his opinions are accurate. It must be understood, that if someone predicts a big crash consistently for years, that he will be right a time or two. I fully agree with the caveat that was added in the article "a clock that is broken will be correct twice a day."

-- Stan Naudus

(received 11/22)

In your Nov. 21 article, you state: "don't let the pundits tell you that people are 'sitting on the sidelines' because of the pre-holiday mood, or post-election morass..." I find it interesting that you disdain the opinion of these unnamed "pundits," but use the opinions of other pundits who express views favorable to your outlook. I happen to agree with you on some points. I just have difficulty reconciling the idea that your readers should believe your pundit's view of the world, and reject any, and all, competing views. But, in all fairness, differences in opinion is what truly underlies our markets, n'est pas?

-- Joe Davies

(received 11/22)

No Coal in This Stocking

Katherine Hobson

: About

The Malls Get Decked: TSC Handicaps the Holidays in Retail

I read your article and for a long time I felt the holiday buying season would be weak. However, even though my friends and I feel much poorer than a year ago, I do believe that there will be a successful holiday season.

I believe most people are still fairly optimistic -- despite the sobering market activity of this year. Even the tiniest signs of a rally would spark people to spend as much as they could (like usual). But, this year I think it will be a matter of pride to spend for the holidays. No bad market is going to deny the American people of their spend-a-lot holidays! I would look to early next year to be a real pullback. I think the sales figures that will be released showing buying activity over the Thanksgiving weekend will

relieve a lot of doubts about what will happen this year-end.

Thanks for listening.

-- David Sheiman

(received 11/21)

Tie-In Info

Jim Jubak:

About

Get More Reward for Your Tech-Stock Risk

Everyone and his grandmother who owns a piece of Ericcson

(ERICY)

is waiting for management to either start turning a profit on its handsets -- or at least get to break-even, or get out of handsets altogether.

What Ericcson seems to saying to its critics deserves mentioning -- and I am not referring to its recent announcements regarding the outsourcing of both the manufacture and design of its entry level sets. Management is saying or implying that landing contracts for 3G infrastructure depends on providing handsets as well to the telcos who are buying their infrastucture equipment. Unfortunately Ericsson never provides details to investors regarding these tie-ins.

-- Jerome Capp

received 11/20

Secret Brokerage Commissions

Mercer Bullard

: About

SEC Preparing to Shine a Brighter Light on Fund Fees

This article is further proof that the

Securities Exchange Commission

is merely a "lackie" for the industry they are supposed to be watching. The SEC claims that they represent the interest of the individual investor but I don't believe it. Your article just reiterates what I've always thought, that the public will always be at a big disadvantage.

-- Paul Mattingly

(received 11/17)

Accentuate the Positive, If You Can Find It

Gary B. Smith

: About

Don't Dwell on the Market's Negatives

I want to commend your "Don't Dwell on the Market Negatives," article yesterday. During this time of political chaos, market uncertainty, and a sea of change before us, I believe this kind of optimistic journalism has great therapeutic value for your readers.

-- Joe Davies

(received 11/17)

Wait and See

James K. Galbraith

: About

Politics as Usual

I liked your piece laying out all the odd permutations of the electoral chaos. One thing you wrote, however, is incorrect:

"... suppose Florida gets tied up as the constitutional date of Jan. 20, 2001, comes near? Well then, here is the best scenario -- OK, I'm not a constitutional lawyer and can't vouch for every detail -- one can possibly imagine. Since neither candidate has 270 electoral votes, the election goes to the new House."

This is incorrect. The election goes to a House vote

only

when there is a tie (i.e., 269-269 of 538 votes).

Two hundred and seventy is not a magic number; it merely represents an Electoral College majority

if every state casts its electoral votes

. Article II, Section 1 of the Constitution, states that a simple majority of the electoral votes actually

cast

determines the winner:

"The Person having the greatest Number of Votes shall be the President, if such Number be a Majority of the whole Number of Electors appointed."

(You can see the full constitutional

text here ).

If Florida is somehow "tied up" and does not certify its results, that means they do not appoint Electors by Dec. 17, the date of the Electoral College. Gore could then actually win the election, as he will garner the majority of the electoral votes cast: 260-246 -- assuming the electors vote as expected, which they do 99% of the time).

Oregon's 7 electoral votes are still undetermined (too close to call), but they could not tip the election; the closest they could make it would be 260-253, still an electoral majority for Gore.

I thought Bush would win the popular vote, and Gore would take the Electoral College -- but I got it exactly backwards.

-- Barry Ritholtz

(received 11/10)

Thanks for the Caution

Scott Moritz

: About

Cisco, Lucent and Nortel: Prime Lenders for the Network Buildout

Thanks for your many great articles on concerns with high tech companies that should be factored in by investors, especially your leading edge articles on the high flying optical sector. Didn't stop me from losing some money anyway, but at least now I know where to look for the future. Also, loved this most recent article cautioning us about high flying stocks picks by the fund managers. Particularly painful for me is

Legato

(LGTO)

, which such a great manager as Kevin Landis touted, and then did nothing from that day forward. I think, blow-by-blow, $ by $, I am finally learning to be less reactive and pay a lot of attention to the ongoing macro environment.

-- Don Barth

(received 11/9)

Vendor Financing Woes

Scott Moritz

: About

Cisco, Lucent and Nortel: Prime Lenders for the Network Buildout

Great article on Vendor financing. I've been in the Competitive Telecom Business for over 20 years and the Utility business a combined 30 years. I've started up several Competitive Telecom Carriers including CLEC's, CAP's, Long Distance Carriers, etc. Therefore, I'd like to comment on this problem.

I have been shocked at the Vendor Financing deals being done over the past few years. These vendor deals have contributed to the telecom failures we are seeing today. People who have no experience in the Telecom business, or no knowledge of the technology they are trying to use have gotten a blank check to disaster. These new telecom executives have no understanding of the relationships between technology, sound business practices, FCC regulations, or a carriers' legal abilities to do business. Yet they are being funded to the maximum by equally dumb or greedy vendors.

Now everyone is losing including sound telecom businesses. Continued financial support for these "blue sky" bad ideas are taking away money from the rest of us. Every business including telecom must turn a profit in a reasonable amount of time, say 1 to 3 years. Investors must have a proper exit for their money. CEO's are responsible to their investors first, customers second and their egos last.

This telecom mess will continue to take down ever larger companies (yes even

Lucent

(LU)

,

Nortel

(NT)

and

Cisco

(CSCO) - Get Report

could be next) until basic business practices 101 are employed by the carriers, vendors, government and banks.

-- WA Byrd

(received 11/9)

Will Mister Softee See Big Blue Deja Vu?

TSC Staff

: About

Microsoft Slides 2.3% Despite Target Raise

My personal opinion of

Microsoft

(MSFT) - Get Report

is that the antitrust actions will be considerably moderated if not eliminated under the Bush administration's influence. Microsoft has to be a competitive player in the software industry in order to maintain its position in a field that is continually evolving and developing internationally. To say that it has created a monopoly simply because it has been too successful in its competitive efforts indicates that certain of its competitors have a "sour grapes" attitude and that the judicial authorities do not really understand the nature of the software industry.

I remember back in the '50s and '60s the

U.S. Justice Department

brought a similar antitrust complaint against

IBM

(IBM) - Get Report

and that it took some 14 years to discuss it and determine what should be done. In the final analysis, IBM was not considered to be a monopoly but rather a highly successful innovator and producer of hardware and software.

I hope that a similar evaluation will be reached regarding Microsoft and that the Justice Department will allow Microsoft to continue to produce new software and thereby improve the economic standards of U.S. industry and the U.S. people.

-- Robert W. Winterhalder

(received 11/8)

PurchasePro's Response

You know that

PurchasePro.com

(PPRO)

is always available to verify and qualify information that is of public interest or of public knowledge. With that in mind, I wanted to clarify some of the points raised in your story,

Doubters Question PurchasePro's Results, as Its Stock Price Dives.

We now receive license revenue for the ownership of a marketplace up front, where we previously did not, because the value proposition has changed. Now, we are able to sell the same product, with a license fee up front and recurring revenue down the road. Before, we just went after the recurring revenue part of the equation.

The contractual recurring revenue piece associated with those licenses will be approximately 50% of license fee. Example: A $220,000 license fee would require a hosting and maintenance fee of approximately $10,000 monthly, or $120,000 on an annual basis, or 54% of the original license fee. This is a contractual obligation of the marketplace owner once we sell him the original license.

We have shifted responsibility to marketplace owners to populate their marketplaces with their own suppliers and customers. Thus, PurchasePro gets a revenue share from these customers, while populating its own growing universal marketplace that it has set up by linking all of its customers to one another. Keep in mind, we are the only unilateral platform where all marketplaces can have seamless commerce between businesses.

We estimate each marketplace owner will populate their marketplace with 200 to 350 businesses over a period of three quarters. PurchasePro estimates that we will receive $100 per member from the aggregate number of marketplaces sold.

To illustrate the aggregate effect of points two through four, think of this example: The 22 marketplaces sold though our direct sales force in the third quarter for approximately $11.3 million would create $5.65 million in hosting and maintenance fees. The number of member participants in these marketplaces will be between 4,400 and 7,700. PurchasePro would then collect between $440,000 and $770,000 monthly from these 22 sold in Q3. This revenue will begin to come in approximately three quarters after the marketplaces are sold.

Receivables only scaled relative to "billable" revenue in Q3. I call deferred revenue "billable" in this case because contractually, PurchasePro has zero obligation for any future deliverables. Basically, that means the recipients of these licenses cannot return them for any reason. But we have chosen to go the conservative route, as far as accounting is concerned, of only recognizing this revenue when these licenses are placed with end users. This is based on guidance from our auditors. However, if you think about it in terms of pure accounting, the licenses were sold without any future obligation or return possibility. That means it has to be a receivable because it has been billed. Hence, the receivables are in line with the billable, or deferred, revenue.

Our AOL marketing expense is being equally amortized over the period of time in which we receive the services we contracted out and paid for. That means that we only booked the expense relative to the delivery of the goods. You shouldn't expense items that you haven't paid for yet.

We have a model that produces approximately 100% to 125% in recurring revenue in Year 2 of a marketplace. These marketplaces are being scaled through companies such as AOL,

Sprint

(FON)

,

Computer Associates

(CA) - Get Report

and

Gateway

(GTW)

, which are all household names. But that's only in addition to our direct sales staff. Our existing customer base continues to grow at a rapid pace. Our revenue has continued to ramp quarter over quarter while our head count and our expenses have grown minimally (headcount growth is zero since Q1). We have forecasted profitability in Q4 of this year and expect to continue profitability in the future with gross profit margins staying at above 90%, which ultimately leads to high operating margins.

The hope and hype of B2B are over and the real evaluation starts now based on who makes the most money for their shareholders. Which model is really scalable and can continue to ramp profits at a higher percentage to revenue? Which leads to the most profitable long-term business? I'll let you guess.

Remember, the truth will begin to show. No more hype, just results.

--Charles E. Johnson, Jr. Chairman and CEO, PurchasePro.com

( received 11/3)

Marc Perkins Revisited

Brett D. Fromson

: About

The TSC Streetside Chat, Part 1: Marc Perkins of Gunther International

Very interesting interview with

Marc Perkins

. Too bad he had to spoil it with his overt display of his political leanings. I thought he seemed like such a logical guy. I agreed with him that the

Rick Lazio

thing was smelly but equally, or even more so, the

Hillary Clinton

thing. The

WSJ

op-ed pages have some very interesting stories to tell regarding this matter. At the very least it is clear to anyone who has looked into it that this was not above water -- just as the Lazio thing appears. My point here is not that I don't like Hillary Clinton, the point is that Mr. Perkins jeopardizes my interpretation of his thoughts on investing, which I thought were very logical and interesting positions, with his sudden allusion to Lazio. To your credit, you immediately brought up the Clinton scandal to balance things out politically. Well done interview anyway. I loved the

Warren Buffett

trading story on

Manufacturer's Hanover

-- just a great, real-world example of how Buffett has done it. Buy low and sell high and always force the hand of greedy people through intense knowledge of your position -- a great example of greed turning to folly.

-- Gregory W. DeFelice

(received 11/5)

Their Days Aren't Numbered Yet

Roland Jones

: About

The Last Days of Daytrading? The Net Collapse Has Left a Smaller Group

Daytrading as a concept does not have an absolute definition. Each daytrader undergoes a rapid evolution up to a level where pound-for-pound the majority will be able to reach the competence and skill needed to decide on their own, to agree or to question the readings of the analysts and to achieve a sound and strong level of technical skills, to understand global, regional and national economic data, political mapping, legislation implications, 24/7 access to the market and information, a confident stand on the short-, medium- and long-term technical target for the

Dow

or the

Nasdaq

.

The majority are not greedy, they are not cowboys. They follow strictly their own rules. If they play for 25 cents using the ultimate oscillator and the 1 minute chart of the Nasdaq or Dow, they are satisfied earning $250 per round trip, less commissions.

By the end of the trading day, they get ready for the following day, look whether the after hours market is green or red, review their technicals, look for probable breakout or breakdown candidates.

It always boils down to "survival of the fittest". Congratulations to all of you guys.

--Tony De Los Reyes

(received 11/3)

Before and After the Bubble

Aaron Task

: About

Beware the Biotech Bubble

Nice article on the biotech bubble. I agree with your take on the current valuation of many biotech stocks. However, I simply want to make one point:

What is different about the rally and decline of the biotech sector from August of 1999 to March of 2000 is that the bust in stock prices was followed by a recovery several months later. This is the first time I have seen the biotechs able to sustain a comeback in the same year. Since 1985, I've noticed that there has been a five-year cycle where biotechs rally and then get wiped out. The biotechs would remain wiped out for about three years and then make a comeback.

This year, the biotech sector got decimated, but was able to recover with a vengeance. Sure, there are many stocks that are overvalued, but investors still want to participate in the sector. I think investors realize that more drugs are being developed and put into clinical trials than at any time in history, so there's a lot of chance for success.

It is odd to me that investors now seem to consider biotech as a safe haven from the high-tech arena. Perhaps the sector is no longer considered as highly speculative.

--Robert Mendoza

(received 11/3)

Napster Won't Be Napping

George Mannes

: About

Napster Gains as Bertelsmann Decides Online Music Is Its Friend

Won the battle, lost the war. How many times do you have to see this? The focus in this case was both too narrow, and too broad. It was obvious the end result would reflect the views of the

Napster

by the fatally arrogant record companies. An agreement is nice; but not really enough. Too little too late. May Napster-inspired sites begin draining money from record companies so they can afford lawsuits! Let the games begin.

--Philip Fisher

(received 11/2)

Nasdaq Nightmare?

Aaron Task

: About

A Hold on the Range: Don't Get Excited Till We Break These Things

I used to hear that the

Dow

climbed a wall of worry but I haven't heard that in a long time. I don't know why this shouldn't also apply to the

Nasdaq

or if this statement and sentiment will come back into fashion. If you're not worried about where the market is going then you shouldn't be in the market, because a market that only goes up is just a dream and a market that only goes down is just a nightmare.

--Mark Seibert

(received 11/1)

Presidential Race Talk on Wrong Track

James K. Galbraith

: About

Who Will Win the Race for President?

I am a big fan of

TSC

and

RealMoney

, but stick to investing and not politics. This article was just plain bad. It was just a rehash of the rhetoric we get from both candidates. I will not say which way I am slanting for this election, but I know more about all the issues touched on in this article with just about no research. I could read all the hype from both parties in the

Inquirer

; I don't need it on this site. Stick to what you do best: investments and the economy.

--Jere W. Dutt III

(received 11/1)