Microelectronics Industry Update Q1/2001

                                           The Real Y2K Effect.

     So who would have guessed that instead of a computer running out of it's clock on 12/31/99 at midnight, that actually  the clock was running out on the computer industry? PC sales for 2001 are being forecasted for single digit growth. After a year of unsustainable growth in 1999, as folks loaded up with their personal inventories of batteries, food, guns, ammo, water, and other types of survival gear, the dotcommers spent the windfall from their perceived wealth of highly inflated internet stock options and investments and  acquired luxury and consumer goods at a wanton pace....and the corporate customer base flourished with hundreds of new companies buying all types of computers, servers, switching gear and equipment, as the internet promised to be the gold rush of the new millenium... Should it be any surprise that the real effect of Y2K was a prelude to a recession? I mean after all, some time or another those personal inventories have to unwind, plus the promising dotcom revolution faded into dotbomb and finally, dotgone… and as for the Nasdaq Bubble, of course it is still unwinding.

     And say, wasn't it a great thing you bought that generator for Y2K, because you just never know when you might need it, clock or no clocks, if your electric utility goes haywire on you like it has in California.  However, when you laid in that supply of gasoline for the generator in 1999 at about $1.35 a gallon, you had no idea you might be paying nearly $2/gal to fill those jerry cans back up again. The Y2K effect... the collapse of consumer condfidence,of course which is reflected in the value of the Nasdaq. The Nasdaq is the best measure of our relative optimism towards the growth of technology and the future. And given today's plummeting stock prices, the recovery is not yet in sight.

 . We sure get to see all the frailties of the human personality during these wild days of boom and bust, especially in the stock market. The greed factor, the fear factor, elation, despair, it's all there… just as you can witness anytime in a casino in Las Vegas… And now that the market has corrected… My goodness… what to buy???

       All the technology plays have been taken out and shot one at a time… multiple times, over and over… There's a seller on every corner in technology, and that doesn't just apply to the stocks. The markets have gradually accepted the paradigm that people want to change the way they use computers, moving from the fixed PC platform to the mobile internet. Folks would like to be driving let's say on the Autobahn, make reservations in Nice for dinner, and book a hotel in Monte Carlo for the night. All through this personal mobile appliance device, whatever it ends up to be. The popularity of the portable notebook computers confirms this trend as well. Usually, however, that mobile device is connected through a fixed wire.

     And then there is the networking sector… the network sector is producing the infrastructure stuff that we need to deliver these types of bandwidth to the home and eventually over wireless for these IP-centric portable personal mobile appliances. The problem is their customer base, the carriers… Just take a look at the poor performance they exhibited in the DSL implementation. Can we truly expect this customer to comprehend the implementation of the Metropolitan Optical Networks?

       Right now, I would say we are in the technology "dead zone" between killer applications. If we go back and look at the evolution of the PC, I would say we are in the "late 70s" in terms of the product life cycle. In the late 70s, enthusiasts were building Heathkits, buying TRS-80, Osborne, Kaypro, Apple etc. There were no real standards until IBM came in and set them for the PC, and we all know the rest of the story there.

       Keep in mind that this portable appliance will be a convergence product. Consumer electronics players, communications firms, as well as computer companies will be pursuing this new killer application. Many companies will pursue this holy grail, but for the next few years these products will offer performance at less than the level of your home PC with full-featured internet capability and a fast modem.  We can expect many false prophets in these early generations of products which will vary widely in features, operability and performance, as was the case with the PC, until standards are established.  The full capabilities of the wireless internet are still a few years off, as far as providing the necessary bandwidth infrastructure as well as robust network-centric applications software to support this type of portable client.

       So while our fears that the World would stop based around a clock bug on computers have been alleviated… the clock is winding down on the PC portion of the computer revolution, and the clock just started ticking on a new and novel product, that will free us from the humdrum of a desk, monitor, keyboard, and box and allow us the freedom of human movement that will further our productivity in the long run.

Thomas Beck 2/24/2001      thomasbeck@thomasbeck.com