August 1, 2001 11:05 AM PDT
Tech futurist talks stocks
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"I view this as a negative sign," the silver-haired technology guru said Tuesday. "Too many of you are still interested in technology."
Gilder is known for predicting the future of technology five to 10 years ahead. That's where the investment opportunities are, according to the frequent writer for Forbes and The Economist, who is equally versed in politics and engineering. Gilder is also known for looking at investing from some odd angles.
Gilder's mantra is "Don't solve problems, pursue opportunities," a phrase he quotes from Peter Drucker, author and management consultant. So Gilder took advantage of the large crowd to try to convert more investors to his "telecosmic" view of technology.
In the world described in his latest book, "Telecosm," communications will be key. And in the telecosmic universe, a coming abundance of bandwidth will make optics companies like JDS Uniphase "the Intels" of the future.
When it comes to investing, it should be noted that he looks far into the horizon. Gilder isn't picking stocks for a quick trade. That's a good thing since analysts expect fiber-optic companies like JDS Uniphase to take a long time to recover. And occasionally, Gilder's stock picks--struggling satellite company Globalstar Telecommunications for example--miss the mark entirely.
Nevertheless, investors and analysts still flock to hear his controversial views--and they usually pay a hefty price. Gilder's conferences can cost thousands of dollars, and a subscription to his monthly newsletters is $295 a year.
"He's not a stock picker," said Steven Milunovich, the Merrill Lynch analyst who introduced Gilder to a small but packed room at New York restaurant Maloney & Porcelli Tuesday. "It's his vision of where technology is going."
In Gilder's view of the universe, companies that provide connectivity will rule over companies that focus on bandwidth, which will become abundant. Gilder compared the situation to that of transistors, which went from scarcity to abundance in the 1980s, driving a wealth of new applications and rocketing chipmakers like Intel into the spotlight.
Reconfigure the time-space grid
Gilder's theory hinges on a broad and quirky worldview. In an era of material abundance, he says, there are two scarcities that will drive the development of technology. One is a physical limit--the speed of light--and the other is a biological limit--the human lifespan. It's heady stuff to mix in with talk of transistors and circuits, but Gilder's speech overflowed with statistics and hyperbole to make his point.
"There is a 30-millisecond delay in crossing the continent," he said of Internet speeds across the United States. This may not sound like much, until you consider that's a 50- to 60-millisecond delay in crossing the ocean to Europe. The average Internet packet also makes about 17 hops between routers along the way, and since the average Internet page has 25 objects that need to be "fetched" separately, that means there's about a 4 second delay on the Internet.
"We have to reconfigure the time-space grid for the New Economy," Gilder opined. Internet users aren't going to stand for these delays, he said, and neither will businesses.
Companies are not going to be able to waste the customers' time anymore. "Incarcerate him in a phone-mail jail until he screams, listening to 'Rhapsody in Blue,' (or) sit him on a couch watching a stream of the lowest common denominator for hours on end, all in order to catch his eye for a few seconds of advertising," Gilder said.
Three cheers for bandwidth glut
From a more practical standpoint, Gilder came back down to earth and offered some business plans and companies that will benefit from the new paradigm he sees shaping up.
"Too much bandwidth is a good thing," said Gilder, explaining that declines in the price of bandwidth are what will create the next killer app.
"The companies that prevail are the ones that waste bandwidth to increase connectivity," he added.
Companies that he named as possible beneficiaries of a bandwidth glut are Essex, a company that designs optical components and trades over the counter under the ticker ESEX, and Avanex, which makes miniature photonic processors.
JDS Uniphase also gets a thumbs-up from Gilder, while he believes Nortel Networks is on the wrong track. "Nortel has bet the farm, and now it's going to buy the farm!" Gilder predicted to the chuckling crowd. Qualcomm is also well positioned in the wireless space, with the intellectual property and "the best technology," he said.
His other controversial theory is that optics will move from a packet-based technology to circuit-switched technology, an idea most don't share. "Everyone agrees that packet switching is the way to go," wrote Milunovich in a note following the presentation.
But are Gilders' picks just the next Globalstars? The troubled satellite telephone company has previously warned it may seek bankruptcy protection unless it does some fast and effective restructuring. Gilder maintains that Globalstar's business is flawed, but its technology is still good.
"That company has frustrated me more than anything else on my list," Gilder said to a waning post-dessert audience. "They outsourced their marketing to telephone companies; that was their big mistake."
Gilder's predictions may not always be on the mark, and several fund managers and investors attending the luncheon said they're now more focused on traditional valuation metrics than blue-sky ideas.
But Gilder's pop wisdom produced at least one nugget that everyone in the audience scrambled to jot down: "The paperless office is as likely as the paperless bathroom."