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from Gilder Publishing

THE FRIDAY LETTER

e-mailed weekly, for friends and subscribers

| http://www.gilder.com/ |

Issue 47.0/March 1, 2002

Please forward this issue!

HEADLINES:

* The Week/ Microprocessors In Transition

* Friday Feature/ Curve Balls

* Friday Bonus/ That P in PC
* Friday Bonus 2/ New Fed Website

* Storewidth Update

* Poll Question/ The new XP

* Readings

* Subscribe / Unsubscribe Information

THE WEEK/ Microprocessors In Transition

“In the beginning, there was the lowly embedded microprocessor, whence came the microcontroller, the CPU microprocessor, and finally the overrated digital signal processor. Embedded microprocessors (embedded as in a fax machine) and microcontrollers (an embedded microprocessor plus other stuff on the same chip) are designed for low cost. CPU microprocessors and digital signal processors are designed for performance. DARPA (David Tennenhouse, Communications of the ACM, May 2000), puts the number of embedded microprocessors at 281 million units. Microcontrollers number 7,257 million units, CPU microprocessors number 150 million units, and digital signal processors number 600 million units…

“This month we examine changes in the microprocessor industry -- who made money before and who makes money today. Comprehending the industry helps us see its future. The microprocessor business is changing from a vertically integrated business to a horizontally integrated business. It has been dominated by “integrated device manufacturers” such as Intel, AMD, Motorola, NEC, Hitachi, and Texas Instruments. These companies design, build, manufacture, and sell their own unique microprocessors. This vertical organization is evolving toward a horizontal one that supports just-in-time chip making. The new layering separates developers of intellectual property “cores,” system-on-chip (SoC) designers, and “foundries.” Profits will migrate to the foundries -- outsourced semiconductor manufacturing -- and to the developers and distributors of intellectual property cores (modularized circuits). Companies in the new layering include…”

Whoa! We hate to leave you hanging, but to get the rest of the story you’ll need to head over to http://www.dynamicsilicon.com/ and pick up the latest issue of Dynamic Silicon by Nick Tredennick and Brion Shimamoto

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FRIDAY FEATURE/ Curve Balls

Art Laffer Speaks

It is the Friday before Christmas in California, and Arthur Laffer is hurtling down the freeway in a silver Lexus ES 400. He’s treating his youngest son, Justin, 18, and eldest grandson, Kai, 13, to a semi-pro hockey game between the hometown San Diego Gulls and the Bakersfield Condors. They jump off at the exit for Kai’s house, searching for the quiet street. “That was it!” Justin yells. Laffer whips the Lexus around and surges, then rolls into his daughter’s driveway. His self-imposed 80 mile-per-hour speed limit, I’d learned, applies not just on thoroughfares but on twisty mountain roads and side streets as well. He had a minor fender-bender that very day but says there have been no major accidents in decades.

Art Laffer has been hurtling along the usually sedate byways of the dismal science for three decades, ever since he hit Washington during the Nixon administration, as the first chief economist of the Office of Management and Budget. On leave from a teaching job at the citadel of American free-market economics, the University of Chicago, he quickly impressed his OMB boss, the future Secretary of State George Shultz, with what turned out to be an uncanny prediction of the gross domestic product in 1971.

Then, on a cool autumn evening in Washington in 1974, Laffer, 35, had one of those moments that end up defining someone for the rest of his life. Gerald Ford’s chief of staff, Don Rumsfeld, and his deputy, Dick Cheney -- things were different then -- were sitting atop the Hotel Washington in the Two Continents lounge near the White House. Watergate and stagflation gripped the country. Ford wanted to WIN -- Whip Inflation Now! -- with a five-percent tax surcharge, which was supposed to re-ignite the American economy by taking big bites out of it. Today raising tax rates in a recession seems silly to almost everyone except Tom Daschle and the junior senator from New York. In the fall of 1974, Rumsfeld and Cheney were looking for alternatives. Happy to oblige was Laffer, who pointed to a mandala sketched on a cocktail napkin -- two perpendicular lines and an arc -- as the answer to the complex problems plaguing the nation. The Laffer Curve, one of the icons of supply-side economics, was born.

But when Jimmy Carter arrived, Laffer turned his back on the Washington power game, and headed off to California. Keeping in touch with is old friends, he was part of Reagan’s informal team of economic advisers, but he never again took a full-time job in Washington. He taught for several more years and then started his own California-based economics consulting firm. And reveled in America’s Eden, raising kids, cultivating palm trees, rearing giant turtles and helping turn Jerry Brown from whatever he was into a temporary flat-taxer for his quixotic 1992 Democratic presidential run. (What if...)

And that is where he seemed inclined to stay, the happy Hobbit of Rancho Santa Fe. But somewhere along the road that brought Republicans -- and a lot of his old friends -- back into the White House, something happened. Art Laffer, now 62, is once again plugged in -- and making waves. The last time he did that, back in his napkin-sketching days, liberals and traditional Republicans were the ones expressing horror. This time, however, it is Laffer’s supply-side friends and protégés who think he’s crazy. A lefty sales-tax holiday? A one-year capital-gains gimmick? No signs of deflation? None?

The central insight embodied in Laffer’s curve is that lower tax rates -- by encouraging people to work, invest, create (and report their income) -- can expand the economy, the tax base and tax revenues. Though rooted in thousands of years of human experience, academic economists and politicians of all stripes laughed. Laffer and his mentor, Robert Mundell, a future Nobel prizewinner, were pariahs.

It would take six more dismal years and two presidential campaigns by Ronald Reagan to fulfill Laffer’s inspired doodling. After Reagan’s tax rate reductions were put in place, inflation plummeted and real tax revenues surged 39 percent in six years. We also got an 18-year boom.

And now, at the end of that boom, Laffer’s old crew is back for a last hurrah. Cheney, Rumsfeld, and two of their good friends from the Ford administration, Paul O’Neill and Alan Greenspan, form a Washington power pyramid. And once again, Laffer is making trouble.

>>Read the full text of Bret Swanson’s article “Ahead of the Curve: Art Laffer Speaks,” FREE, at http://www.gilder.com/

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GILDER PUBLISHING ANNOUNCES FIRST OPPORTUNITY TO PURCHASE REPRODUCTIONS OF THE 1853 ENGRAVING OF THE FIRST PRAYER IN CONGRESS!

Gilder Publishing proudly announces a limited-time offer to be the first to acquire a “Commemorative Sesquicentennial Edition” reproduction of the 1853 engraved painting, The First Prayer in Congress. Only 1,500 are available. Each is numbered and accompanied by a hand-signed Certificate of Authenticity.

Don’t miss this first chance to own The First Prayer in Congress -- artwork that was made an official act of Congress more than a century ago. Other promotional offers will soon follow, but for the next few weeks, ONLY customers of Gilder Publishing have the opportunity to acquire the lowest numbers in the edition. To learn more about The First Prayer in Congress -- and how to reserve your own personal edition, visit the following Gilder webpage: https://www.gilder.com/congress/

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FRIDAY BONUS / That P in PC Now Stands for Picture
The New York Times: Circuits

”When film cameras ruled the earth, it wasn't hard to devise a crisp, efficient system for organizing photos. Most people adopted variations on the Oscar Madison technique: 1. Stuff prints into shoe box. 2. Stuff shoe box into closet.”

“That system won't last long in the digital age, however. Once you've bought the equipment, digital photography is free -- there is no cost for film or developing -- so people snap far more shots than they did with film cameras.

“And besides, these days, making prints may no longer be the point. Because your photos are electronic, you can use them as fodder for all kinds of newfangled presentations, from slide shows to screen savers. All you need is a good piece of software to organize, find, print, send and otherwise manipulate your pictures: a digital shoe box. It says something about the evolution of the personal computer that both Apple and Microsoft are emphasizing features for managing digital photos, not typical office documents, in their latest operating systems.”

>>Head over tohttp://www.nytimes.com/pages/technology/circuits/index.html and find out everything you ever wanted to know about photos on demand.
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Looking for need-to-knows news and information on telecom, biotechnology, venture capital, e-business, personal technology and more? Subscribe to Corante, a daily digest of dozens of top newspapers, magazines and journals that's been called a ''must-read'' on the tech sector.
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FRIDAY BONUS 2/ Federal Government Unveils Redesigned Web Site

Washington, DC -- Hoping to encourage more citizens to make use of its services on the Internet, the U.S. government on Wednesday launched a redesigned web site that links more than 35 million federal, state and local web pages. The site, www.firstgov.gov, provides users with a range of options, from contacting their congressmen to buying stamps online. The original site, launched in September 2000, primarily relied on a search engine to guide users. The new version, however, is designed to drastically cut down on the amount of options given to users, allowing them to find what they are looking for with fewer clicks of the mouse. The site is part of an effort by the Bush administration to improve online services. The administration plans to spend $52 billion on high-tech
projects in 2003.

http://www.firstgov.gov/

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STOREWIDTH INDUSTRY LEADERS TO SPONSOR STOREWIDTH 2002 CONFERENCE

The premier conference for the storage and networking executives, Storewidth 2002, welcomes today's leading storage, networking and finance companies as principal sponsors.

Charles River Ventures http://www.crv.com/
eZmeeting http://ezmeeting.com/try_free.html
Hitachi Data Systems http://www.hds.com/
Legato http://portal2.legato.com/
Miror Image Inernet http://www.mirror-image.com
Quantum Corporation http://www.quantum.com/default.htm
Scale Eight http://www.scaleeight.com/
Spinnaker Networks http://www.spinnakernetworks.com/
TrueSAN http://www.truesan.com/
YottaYotta http://www.yottayotta.com/

will exhibit at Storewidth 2002 -- Where Infinite Bandwidth and Storage Converge, March 24-27, 2002, at the Ritz-Carlton Laguna Niguel, http://www.storewidth.com/conferences/

Don't forget...Storewidth 2002 is now less than just four weeks away. Visit Storewidth.com today to review the full Storewidth 2002 conference agenda, http://www.storewidth.com/conferences/agenda.php. To avoid being shut out of this not-to-be missed event, register online today at http://www.storewidth.com/conferences/register.php or contact conference registrar, Rick O'Neill, at 1-800-720-1112 (x2139) or roneill@gilder.com. See you in Laguna Niguel!!

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Gilder.com Poll: Should the U.S. pay ransom for hostages?
Yes - 3%
No - 97%

Up Next: Has Microsoft finally done it with the XP operating system?

Let us know at http://www.gilder.com/

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READINGS

The $200 Billion Miscarriage of Justice

http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=206477

Positive Reviews For Verizon’s 1x Network

http://www.computerworld.com/storyba/0,4125,NAV47_STO68684,00.html

Williams Communications May Seek Bankruptcy

http://www.nytimes.com/2002/02/26/business/26TELE.html

Intel Unveils P4s For Servers

http://www.nytimes.com/2002/02/25/technology/25CHIP.html

TrueSAN: Making Sense of Storage Management

http://www.internetworld.com/news.php?inc=storage/02272002a.html

BT Cut Prices for Broadband

http://www.nytimes.com/2002/02/27/technology/27BRIT.html

Broadband Bill Advances

http://www.nytimes.com/2002/02/28/technology/ebusiness/28BROA.html

Dell: On the Acquisition Outlook

http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3MZ3EJ7YC&live=true&useoverridetemplate=ZZZ99ZVV70C&tagid=IXLYK5HZ8CC

MSFT, DOJ Tweak Settlement Terms

http://news.com.com/2100-1001-847355.html

Chasing Moore’s Law

http://www.wired.com/news/technology/0,1282,50672,00.html

File Trading Fiasco

http://www.wired.com/news/politics/0,1283,50725,00.html

Interview: Nextel CEO

http://www.businessweek.com/technology/content/feb2002/tc20020215_3000.htm

IT Recovery?

http://www.techweb.com/tech/e_business/20020226_e_business

The Genome Is Mapped, Who Will Profit?

http://www.nytimes.com/2002/02/24/business/yourmoney/24WHIT.html

CD Technology Stops Copies

http://www.nytimes.com/2002/03/01/technology/01PROT.html

Skeptics Greet Germans’ Claim On Dark Matter

http://www.nytimes.com/2002/02/26/science/physical/26NEUT.html

The Blogger Manifesto

http://www.andrewsullivan.com/print.php?artnum=20020224

The New York Times Gets Hacked

http://www.computerworld.com/storyba/0,4125,NAV47_STO68662,00.html

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FRIDAY LETTER STAFF

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Dave Dortman (ddortman@gilder.com)

John Hammill (jhammill@gilder.com)

Aaron Charlwood (acharlwood@gilder.com)

CONTRIBUTORS THIS WEEK: Bret Swanson, John Hammill, Dave Dortman, Sandy

Fleischmann, Aaron Charlwood

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