Chips Down, Wireless Up at JPM Tech Conference

PalmOne, Network Associates and Eliot Spitzer win over the crowd, but semi giants fail to inspire.
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With the

Nasdaq

in retreat, investors at this week's JPMorgan Technology & Telecom Conference in San Francisco were understandably battle-worn. Although companies were generally bullish and attendance was strong, investors left the conference grasping for something -- anything -- to spark a rebound in a sector whose recovery has recently been

plagued by potholes.

Those looking for an answer from

Applied Materials

(AMAT) - Get Report

CEO Mike Splinter, who gave Tuesday's keynote address, left empty-handed. Many simply left early. A furtive stream of investors who'd polished off their curry chicken ducked out of Splinter's presentation on the "digital future" under cover of darkness, leaving behind half-eaten coconut tarts and empty tables in the Westin St. Francis' grand ballroom.

The lunchtime flight may have had something to do with the ultratechnical details of AMAT's business, with Splinter tossing around words such as "substrate" and "atomic layer deposition." But the departures could also reflect that investors have lately

soured on all things chip-related amid concerns about a peaking chip cycle.

Even Splinter said that order growth rates are likely to slow in the not-too-distant future. "You can't grow at 30% to 50% for very long. The numbers have to adjust to a more normal pattern," he acknowledged in a Q&A session. In the first quarter, AMAT's new orders grew 32% on a sequential basis.

Similarly, talk from an

Intel

(INTC) - Get Report

marketing executive did little to cheer semiconductor investors.

Shmuel Eden, an Intel vice president and the marketing director of the company's Mobile Platforms Group, talked a lot about the slick new features of Intel's new Dothan mobile chips. But he provided little insight into supply and demand issues that might affect the mobile market this year.

Investors, meanwhile, were fretting about valuations and the semiconductor cycle, rather than focusing on Intel's latest plans to make mobile computing faster and easier.

Asked whether the drop in semiconductor stocks -- the Philadelphia Stock Exchange Semiconductor Index is down about 20% from its mid-January high -- has brought valuations into line, one tech fund manager who requested anonymity said succinctly, "No.

They're still significantly overvalued."

Adam Holt, who covers chips for J.P. Morgan, had more to say, but his bottom line was similar. He thinks the sector is likely moving toward the downside of the semiconductor cycle as supply catches up with demand.

Wired Over Wireless

If they're eschewing chips, what are investors looking at? Wireless is one answer, judging by the standing-room-only turnout at

palmOne's

(PLMO)

presentation Wednesday, and the stock's 12% rally that day.

"The market opportunity is enormous," palmOne CEO Todd Bradley told the crowd of about 100 attendees, many overflowing into the hallway. The maker of handheld computers and smartphones projects that it will post $1 billion in sales in fiscal 2005, up 15% year over year. More than half of the company's revenue will come from its Treo family of products by this time next year.

Meanwhile, in the software world, J.P. Morgan analyst Sterling Auty's "fireside chat" with

Network Associates

(NET) - Get Report

CEO George Samenuk on Tuesday yielded an interesting surprise. Asked whether he would give full-year guidance at the company's analyst day next month, Samenuk confidently declared that the company would give guidance for the next six quarters. (

Talk about visibility!

)

Many other software makers, by contrast, say they can't see well enough beyond the upcoming quarter to give guidance.

With nearly $1.3 billion in cash expected by the end of its current quarter -- after the company's recent sale of its Sniffer and Magic divisions -- Network Associates started buying back shares last Friday, Samenuk said.

He also suggested that the company is considering retiring its $345 million convertible debt, whose first call date is in August. "I'd like to have a company with a lot of cash and no debt," Samenuk said. (

Who wouldn't?

)

Shares of Network Associates gained 4.7% the day of the presentation.

The Sound of One Man Clapping

On Monday, the first day of the conference, New York State Attorney General Eliot Spitzer attracted a packed audience of attendees who clearly weren't big fans of his crackdown on investment bank and mutual fund malfeasance. As the lunchtime crowd half-heartedly picked at plates of cold chicken and noodles, Spitzer hashed over the breakdown of standards on Wall Street in the late 1990s and called on investors to demand higher standards of corporate governance. (Spitzer gave a

similar presentation in San Francisco in March.)

When Spitzer relayed the day's breaking news that investment banker Frank Quattrone had just been

convicted of obstruction of justice in New York, one sole member of the audience applauded. "Clearly he was not a friend of Frank. He did not get an allocation," Spitzer said of the solitary clapper, prompting widespread laughter.

Though Spitzer seems to have earned the grudging respect from Wall Street participants, it was apparent that the Street would be happier if he directed his attention elsewhere. The attorney general mentioned on Monday that he had first been tipped off to abuses at investment banks by used car salesmen who wanted Spitzer to investigate somebody else for a change.

"Have you tried looking at credit card companies?" one member of the audience shouted. Spitzer explained that high credit card interest rates are legal, even if they don't always sit well with consumers.

In other words, don't expect him to give Wall Street a break anytime soon.

Mother's Day and Dot-Com Survivors

A visit to private company presentations, meanwhile, revealed that times have definitely changed since Quattrone's heyday. Internet enthusiasm is still alive and well, but eyes are keenly focused on the bottom line.

CEOs from both online photo service

Shutterfly

and shopping search engine

BizRate.com

touted their Internet companies and cool online features, with timely plugs for Mother's Day gifts, such as picture frames and flowers.

But lest investors confuse their firms with the red-ink bleeding darlings of yesteryear, both CEOs made a point of highlighting their profitability and multiyear operating histories.

Shutterfly counted five rounds of venture capital funding since 1999 and has been profitable since last year. "We went through the bust and hung in there," said CEO Dave Bagshaw, who remained tight-lipped about a potential IPO. "There are always a lot of possibilities out there," he hedged.

BizRate has received $77 million in VC funding, but hasn't had to raise a cent in four years, and has been profitable for the past two, CEO Chuck Davis said. The company trails

Shopping.com

as the second-largest shopping search engine but is the fastest-growing, he said.

But what about potential competition from the

most-hyped IPO since the 1990s --

Google

-- which has a Froogle shopping service? "There are going to be several winners," Davis replied, noting that creating the perfect shopping search engine "doesn't happen overnight."

Battle Scars

Visibly more beaten-down than his predecessors,

Buy.com

founder Scott Blum offered a noticeably less upbeat presentation about the company he founded, took public and then bought back and took private again -- all in a span of about four years.

Had he known it would be so hard -- and take so long -- to stem the losses, Blum said he wouldn't have bought back the company. It would have been easier to start from scratch, he added.

Three rounds of layoffs later, revenue in 2004 is expected to grow 24% year-over-year to $301 million. Just that day, Blum said he met with Google about building a relationship to drive more growth.

Still, Blum talked about the challenge of turning Buy.com into a $1 billion business. Maybe the heady dot-com days aren't completely gone after all.