NYSSA Forum Program (1999 - 2001)


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The NYSSA summary of its program that encouraged Amazon's leadership in financial reporting standards and the SEC's October 2001 adoption of Regulation FD can be viewed here.

For subsequent Forum attention to related issues, see its 2010 program establishing marketplace standards for Electronic Participation in Shareholder Meetings and its 2012-2015 collaboration with The Conference Board addressing Fair Investor Access.


The Wall Street Journal


The Wall Street Journal Interactive Edition -- April 2, 2001

April 2, 2001


Searching for Bargains in the Technology Wasteland

By Mark Veverka

I t was another unsightly week in Techland, as the carnage continued to spread into the once-hallowed grounds of fiberoptics and storage. The Nasdaq nose-dived 6% on Wednesday after Nortel Networks not only lowered its guidance for the first quarter but basically bailed on its outlook for the year, saying the global economy is looking worse by the day. After trading as high as 89 last summer, Nortel closed Friday at 14.05.

With so little visibility on the horizon, we decided to ring up one of our technology forum panelists from last September, the always-eloquent Roger McNamee, to see how he was handling the maelstrom.

"'Eighty-seven was a piece of cake compared to this, but I'm not doing as badly as some people I know," says McNamee, a partner of Integral Capital Partners, a Menlo Park, California, hedge fund.

McNamee, who keeps his mind off of the dour market by fronting for a Grateful Dead-inspired rock band, the Flying Other Brothers, says he's starting to see some good values rolling along the perpetual bottom of the tech market. "We are undergoing a valuation compression, and the "e" (as in P/E) is on a very steep slope downward," says McNamee.

Of course, earnings are taking a beating with no end in sight. So what is our rock-and-roll stockpicker picking these days? McNamee says he continues to concentrate on data communications companies, such as Juniper Networks , Extreme Networks and Riverstone Systems, which was recently spun-off by Rochester, New Hampshire-based Cabletron Systems .

With pessimism prevailing, McNamee is careful to say that anything worth investing in is likely to have some baggage. For example, the demand for personal computers stinks (which wasn't his precise word choice), but the bright side is that there is no inventory surplus, implying that PC makers and semiconductors are getting a lot of love from the value pickers.

An extension of that kind of thinking is his enthusiasm for certain names in contract manufacturing, which make computer components, mobile phones and other devices. While it might seem obvious, not all contract manufacturers are alike. Indeed, McNamee is fondest of Flextronics which trades at 15, with a forward P/E of 16.

One of the key reasons is that, after growing though acquisition, Flextronics has invested in information technology, making sure all of its manufacturing and warehouse facilities run on the same enterprise software. The benefit: greater efficiency and better inventory management.

By contrast, McNamee says competitor Celestica has more than two dozen facilities that run on two dozen or so different enterprise resource planning systems that the company inherited along the way. As a result, he doubts that Celestica will have a clear idea of its own inventory from one plant to the next. And having a handle on inventory will be critical as manufacturers try to navigate their way out of a recession or economic downturn, giving the edge to Flextronics.

"Flextronics will comeback wildly," McNamee predicts.

Because we had Roger-dodger on the line, we wanted to revisit one of his favorite picks from last year's tech roundtable: Amazon.com . At the time, Amazon was selling at above 40, and McNamee was pounding the table on its behalf. He now admits that he took a hit, saying Integral unloaded its shares at a loss "after Christmas." Amazon traded at 13.88 on January 2 and closed Friday at 10.23.

McNamee contends he bought Amazon based on the thinking that the initial report by departing Lehman Brothers bond analyst Ravi Suria -- Suria announced last week that he was leaving Lehman to join Stanley Drunkenmiller's Duquesne Capital hedge fund -- unjustifiably dragged down the shares last summer. His bet: Amazon would prove its muster with a stellar holiday sales season.

"Our belief was, not only were they financially viable, we thought they would have a good Christmas, which I think they did," McNamee says.

Not so fast, we replied, noting that the e-tailes annual revenues fell short of an already reduced $1 billion target, and revenue per customer plunged from $40 a year earlier to $33 against a backdrop of soaring customer attrition.

But McNamee held his ground: "I was wrong about the threshold of what the Street would give them credit for. So we just licked our wounds and moved on."

Still, we wondered whether the fact that Kleiner Perkins partner John Doerr, who is also an Integral investor, is an Amazon shareholder and director carried any sway with his stockpicking? "The fact that Kleiner is a business partner affects my market thinking none whatsoever," McNamee says. "In fact, I couldn't get Amazon to return my phone calls within a month for the past three years."

Speaking of Doerr, the high-profile venture capitalist was faxed a letter last week by the New York Society of Security Analysts Committee for Corporate Governance, personally inviting the Amazon board member to participate in the group's upcoming forum meetings. The NYSSA has been trying to get a clearer grasp of the company's financial reporting.

"Since you have reportedly stepped forward to act as Amazon's board liaison with the investment community, and also since you are professionally familiar with investor information requirements, I ask you to make use of your unique position to establish effective communications between members of Amazon.com's board of directors and the Forum," the letter states. (According to a recent New York Observer article, Doerr tried to quash a critical research report by Lehman's Suria asking Lehman brass to prevent it from being published.)

"You should know," the letter, penned by forum co-sponsor Gary Lutin, a New York investment banker, continues, "that there has been no response to my [earlier invitations]. Amazon's failure to provide requested supporting information naturally raises many concerns, especially in the context of management's continuing public promotion of the kind of representations which are being challenged by investment professionals, the SEC and shareholder lawsuits."

Amazon officials have repeatedly maintained that they have been clear and forthcoming on all financial reporting issues, despite several reported examples suggesting just the opposite. In fact, chief executive Jeff Bezos emphatically extolled his company's supposed openness during his three-hour appearance on CNBC's Squawk Box last week. In an interview, Lutin says he wants to give Doerr an opportunity to practice Bezos' oft-stated, open investor relations policy.

"I'm asking Mr. Doerr to show investors that they can rely on him and the other directors for effective parental control," Lutin says. Doerr did not return telephone calls by Barrons.

The lucrative Internet gabfest gravy train is starting to run its course. Late last week, the publishers of Internet World magazine, Penton Media, decided to cancel its "Internet Everywhere CEO Summit II," which was to be held in San Francisco, April 23-25.

A spokesman for the company acknowledged that a lack of interest no doubt exacerbated by deteriorating economic conditions here in Bubbletown was at fault. The company plans to fold its CEO-centric program into two of its other shows planned for New York and San Jose later this year.

Good luck. In a study first reported by The Wall Street Journal last week, it was predicted that about 80% of Bay Area dot.com companies still showing a pulse will fold over the next year, wiping out about 30,000 more jobs. Maybe Penton should develop a new conference. Might we suggest the "Out of Work Everywhere Internet Casualty Summit."

Copyright 2001 Dow Jones & Company, Inc. All Rights Reserved.



Material presented on this page was distributed to participants in a "Forum Program" conducted for public educational purposes, co-sponsored by Gary Lutin with the New York Society of Security Analysts ("NYSSA") Committee for Corporate Governance and Shareholder Rights from January 1999 to July 2001.

For additional information, send an inquiry to admin@shareholderforum.com.