Grim or Grimmer - Thomas Weisel Partners Growth Forum 3.0 - Industry Trend or Event

Industry Standard, The, July 9, 2001 by Cory Johnson

AS MONEY MANAGERS GATHER AT A GROWTH CONFERENCE, ONE QUESTION HANGS IN THE AIR: HOW BAD WILL IT GET?

The language of Wall Street has taken on double meanings in this desperate market. The trading "floor" that the Nasdaq exchange lacks -- it's all electronic -- becomes a grim reminder that the Nasdaq index is itself in need of a floor. Similarly, the "growth" in growth stocks is more likely to be malignant than benign these days. And "ground zero" has gone from denoting the starting point of a new economy to the center of its destruction.

With all this in mind, last week's Thomas Weisel Partners Growth Forum 3.0 conference was, in fact, ground zero for the floor of the Nasdaq. Or at least that was the hope of the 357 money managers gathered in Santa Barbara, Calif., at the luxurious Barcara resort. They came to meet with the top brass from 77 "growth" companies (companies primarily in the health care and technology fields); and they hoped to hear that a floor had been found -- that if things weren't better, at least they weren't getting worse.

But what they heard, sadly, was more complicated and less encouraging.

The party line of most of the companies presenting was that conditions should improve in the coming months. Companies like electronic components distributor Avnet, health care company McKesson HBOC, chipmaker Micron and cell phone giant Nokia all expected the second half of the year to be better. But they offered little to hang those hopes on -- new product releases, back-to-school spending -- instead sounding a general theme of "How much worse could it get?"

If your $10 stock is now trading at $5, you know the answer to that one.

Some companies were more candid. "The end markets are terrible," said Michael Marks, CEO of contract manufacturer Flextronics. "Do you want to know which ones? They're all terrible. And in this period, the business continues to get worse each week." Cisco went one further, saying that capital expenditures by telecommunications companies may not come back for a long time. "In the current climate, everybody is in cash conservation mode," said Mike Volpi, Cisco's chief strategy officer. "I don't expect that to change, really, for the next couple of years."

The most ominous note of this gathering came from gray-haired venture capitalists speaking at a Tuesday panel. Without stocks to inflate, VC veterans offered a more sobering prospect. They predicted a turnaround at year's end -- next year, that is.

So which is it? Are the companies right that the worst is over? Or are the venture capitalists right that the worst is yet to come? The outcome, of course, will determine the very direction of the stock market, and the near-term success or failure, of investors.

"As is so often the case in such matters, different observers speak from the perspective of their own portfolios," explains Mark Manson, Thomas Weisel Partners' director of research. He suggests the truth may lie in the middle. "The exact timing of a recovery may well be driven by factors outside of all their control: technological change, the pace at which the economy absorbs the stimulus of Federal Reserve rate cuts. And there may be specific competitive advantages they may not be able to observe right now."

Technological obsolescence, rather than linguistic obsolescence, might be the only thing to ultimately bring this market around. The reduction of inventories and new technologies are the only hope. "All technology devices and all components are more like mackerel than like Chateau Lafite," says U.S. Venture Partners general partner Irwin Federman. "They do not get better with time."

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