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- THE FRIDAY LETTER -
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for friends and subscribers)
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| http://www.gilder.com/
| Issue 275.0/December 15, 2006
SIGN-UP A FRIEND FOR FREE!
HEADLINES:
- The
Week / Selling SIGM to Buy NETL?
- Book of the
Month / Fisher’s The Only Three Questions
That Count
- Friday Blogger Bonus / The Next Great Computer Company
- Readings /
|
George
Gilder’s technology stock picks continue to strengthen subscriber
portfolios. Semitool is up 45%; Finisar is up 69%; SIgma Designs is up
75%; Equinix is up 91% and Gilder TECHNOLOGY REPORT favorite,
Net processing proDIgy EZchip, is up 183% for the year! |
The
Week /
Selling SIGM to Buy NETL?
George Gilder, 12/11/06 (on the www.Gildertech.com
message board):
Although I
doubt the value of technical analysis in a situation with many imponderable
fundamentals that could turn any way, this seems as good a time as any to get
into NetLogic (NETL).
Earlier I answered a question on whether to sell Sigma Designs (SIGM) in order to buy NETL. I answered
that the question shows the perils of translating one investor's contingency
into a general recommendation. I have been looking long and have yet to find a
“life after television” play better than Sigma.
I love Corning (GLW), but it is large cap and has already had a large
move. I like Microvision (MVIS) and it is looking better all the
time, but it's high-def future is years ahead and it is no rival to SIGM. You
could contemplate Zoran (ZRAN), but it seems to spread itself
too thin to gain substantial margins. I prefer to make my diversification
decisions myself rather than surrender them to the caprices of a particular
company's strategic staff.
So at this point I would not sell SIGM to buy NETL. Netlogic is a fine,
resourceful and opportunistic company and we have enthusiastically recommended
it. Its many ingenious techniques have put it on our “Telecosm Technologies”
list. But its angle of ascent is slower and longer and less sure than Sigma's.
For all the talk of knowledge processors, NetLogic is an intelligent memory
company, part of Dave Patterson’s IRAM (intelligent RAM) paradigm. It is a way
of selling memory at prices tenfold or more higher than commodity memory
companies can. In its guise as a memory company it can claim a huge range of
applications (anything you can put in the memory; the list is endless). But it
is less entrenched in the critical path than is the network processor (NPU). A memory
device is optional; it can be replaced with another memory device as soon as
the performance crosses the necessary wirespeed threshold. But a network
processor such as EZchip (LNOP) constitutes the key software
interfaces that define the system and cannot be readily displaced.
The question of when and how intelligence will be imparted to storage functions
remains debatable. Many of the content associative algorithms and filters that
are used by NetLogic can be incorporated in other devices such as memory access
controllers and network processors. (EZchip is already doing it, and will
probably expand this capability in future NPUs.) This approach allows use of
cheaper and lower power random access memory.
As one relevant network systems guy I consulted during my October trip to the
Valley told me, "We hate to use CAMs [content addressable memories; still
NETL's chief product] and plan to get rid of them just as soon as
possible." With the increasing stress on security processing in the
network, he may well be forced to continue buying NetLogic chips for years to
come. I have been waiting 18 years for security to move finally to the edge
where it belongs. (Perhaps over time NetLogic can also find a place on the
edge, particularly in datacenter applications. Jankov mentions a relationship
with AMD.)
Selling SIGM now is radically premature. Selling some SIGM and buying NETL,
seems a typical case of fighting the tape, selling your winners and buying your
losers, despite the fact–detailed convincingly in our amazing new book of the
month, Ken Fisher's The Only Three Questions That Count–winners
on average do significantly better than losers do.
Logon to the subscriber-only message board with your subscriber ID at
www.Gildertech.com to read more
posts by George Gilder.
|
The Gildertech Blog, http://blog.gildertech.com/ | Logon now to see what’s new. |
Book of the
Month
/ The Only
Three Questions That Count
George Gilder on Ken Fisher’s latest book, The
Only Three Questions That Count:
We all worry about whether our winnings are mostly luck. Through the Forbes
Investment Cruise (November 25 – December 5, 2006) and after, I have been on a
Ken Fisher binge. On the cruise, Ken made two points relevant to the Gilder Technology Report’s interest on our prospects for luck
with technology stocks in 2007.
Fisher's
GTRelevant Point One: Because of the large gap between the current low
level of long term interest rates and the relatively high return on equities
measured by earnings yields (reverse PEs), 2007 shapes up as a great year for
equities. It will be driven by takeovers, reverse takeovers, and other devices
that have the effect of reducing the supply and increasing the price of
equities across the board.
Fisher's
Point Two: Technology stocks will be reasonably safe this time since technology
investors were thoroughly spooked by the millennial collapse. "Technology
will not lead the next bear.”
Ken
Fisher has been independently judged to have outperformed all other market
gurus in predicting broad market movements over the last few decades. He
manages $35 billion, is a multi-decadal Forbes columnist, and the only
one on the Forbes 400 list. As a pundit, he is numero uno. He predicted the
technology boom, ignored all the sturm and drang of the late 1990s, with its
Y2K panics and trade gap anxieties, and then he perfectly analyzed and timed
the technology crash.
Now
he has written an instant-classic investment book called The Only Three
Questions That Count: Investing by Knowing What Others Don't.
Reading his book is a sobering experience. With remorseless logic, he shows it
is almost impossible reliably beat the market. He implies that all experts have
their seasons and then dwindle into irrelevance. I like to think that I am a
man of many seasons: conservative sex books in the 1970s, Wealth and Poverty and President
Reagan in the 1980s, microchips and Qualcomm in the 1990s, premature Life after TV throughout the 1990s,
deflationary crash at the Millennial turn, and now the Telecosm redux. But I know that
most of my investment successes have been at least 75 percent luck and 25
percent overconfidence. When I saw a pattern in the retina, I shot my wad or
wallet. The other 25 percent is my prowess at the blarney box—you can add or
subtract that as you wish.
Fisher's
key insight is that investment is not a craft that can be mastered by merely
accumulating information. For both lay people and professionals it has been
shown that beyond a rather low level, more information in itself does not
improve investment performance at all. The most persuasive experiments on this
point come from betting on racehorses, not the market. But Fisher says you can
assume the market is similar. It merely increases confidence and induces the
more grandiose errors that overconfidence can feed.
According
to Fisher, the key to winning in investment—I paraphrase him here—is making
bets “only” when you know things that most other players in the market don't.
Fisher
and I agree that the trade gap and the budgetary deficit are positives for
stocks—the bigger the better. (Americans hold far too little debt and anything that increases it is a plus.) He also
celebrates the supply side tax cuts, though he deems a negative for stocks the
current little noticed all-government budgetary surplus caused by the tax rate
reductions.
Otherwise
the crucial investment knowledge pertains to the fundamentals of particular
stocks. I try to offer this kind of inside knowledge in the Gilder Technology Report and on the Gildertech blog page, with Charlie
Burger’s crucial help and the increasingly valuable contributions of our
subscribers on the GTR subscriber massage board (the Telecosm Lounge) at
www.gildertech.com. The board is the
heart of our subscription service. You should use it to gain a Fisher's edge.
The
rest of the time—when you do not know anything special—you need the discipline
to be invested essentially in funds that diversely mirror the market as a
whole. Your greatest ally is capitalism, and the annualized average of 10
percent gains that the stock market offers—hugely greater than is offered by
bonds.
After
writing the above, however, I read the final thirty pages of Fisher's amazing
book and collided with a wall of incomprehension, an opacity of averages. He is
right about almost everything. But I believe he is absolutely wrong on one
thing. At the end of his book, he relegates stock picking to a secondary or
tertiary facet of investment strategy, worth perhaps 10 percent of your
performance, with 70 percent assigned to the decision among stocks, bonds and
cash, and 20 percent to the choice of subsectors of stocks.
He
believes the market absorbs all public information, apparently by some mystical
means without any successful stock pickers out there uncovering the facts. He
seems not to recognize that all the index funds and carefully benchmarked
renditions of the entire market are useless if no one does the fundamental
analysis that yields accurate valuations for the companies….
He
says I cannot disagree with him unless I scientifically prove him wrong. All
right. It can be done. I hope to do it in my speech at the New York City Junto
meeting on January 4 (see http://www.nycjunto.com/library/2007/01/Gilder.htm).
Read
Gilder’s complete commentary on Fisher’s book:
http://blog.gildertech.com/
Order your copy of Fisher’s new book today. (http://www.gildertech.com/bookstore.html)
|
Did you miss GILDER/FORBES Telecosm
2006? |
Friday Blogger Bonus / The Next Great Computer Company
GTR Subscriber, 12/11/06 (on the www.Gildertech.com
message board):
In making the
parallel between the CPU (central processor) and the NPU (network processor)
and their respective effects on the PC and networking industry, it
seems there is one consideration left unconsidered and that is the operating
system... the PC was hollowed out by Intel (INTC) and Microsoft (MSFT), the networking industry does not
have a Microsoft equivalent.
In
the last two weeks I have talked to Cisco (CSCO), Juniper (JNPR) (twice), Foundry (FDRY), Extreme (EXTR), and Redback (RBAK) about the role of merchant silicon
in their product road maps and the implications of more merchant silicon on
gross margins. Admittedly, they were giving me their best spin
but each of them essentially said the same thing... the operating system is
critical and is where all the points of differentiation are.
Redback
said the reason they have had so much success is that their operating
system was developed so much later than Cisco's and Juniper's and therefore the
entire product was built with next-gen networking requirements in mind (control
and forwarding plane separation, for example).
The
other point of difference is that the purchase of networking platforms is a
long-term commitment with services and line cards and upgrades etc. (at
extremely high margins) following the initial purchase of a chassis.
No
real investment implications other than I would not expect to see EZchip's (LNOP) arrival on the scene to cause
router and switch margins to collapse to PC margins.
George Gilder’s reply, 12/11/06:. I agree with your analysis. The hollowing out of the
router offers an analogy with the PC history. But I am currently captivated by
the notion that Cisco (CSCO) could become the next great computer company
through its mastery of processor links through the backplane and the
datacenter. IBM (IBM) seems to be focused on software
applications and business services and Microsoft (MSFT) and Intel (INTC) have less prowess in networking.
As the computer becomes the network in a datacenter, the fast Cisco network
links and the operating systems that manage them become the most valuable asset
for the new computing paradigm. The router will hollow out, but networks
organized by routers may become a new locus of value for the Googleplex and its
successors. Cisco et al (perhaps including Bectolsheim's SUNW) are well placed to capture the
yield of this transition.
Logon to the
subscriber-only message board with your subscriber ID at www.Gildertech.com to read more posts
by George Gilder and his subscribers.
__________________________________________
Readings /
How Bell Labs
Missed the Microchip
http://www.spectrum.ieee.org/dec06/4749
These Services
Make Backing Up Your FilesSafe and Inexpensive
http://online.wsj.com/article/SB116605008415449429-search.html?KEYWORDS=Mozy&COLLECTION=wsjie/6month
Berkeley Data
Systems Launches Mozy Unlimited Backup
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/12-14-2006/0004491277&EDATE=
How to Pick a Cell Phone Provider
http://www.wired.com/news/wiredmag/0,72301-0.html?tw=wn_index_5
IEEE Spectrum R&D 100
http://spectrum.ieee.org/dec06/rd100
Mac
Envy
http://www.forbes.com/technology/2006/12/12/apple-microsoft-mac-tech-cz_dl_1212mac.html
Reynolds: The Top 1% ….. Of What?
http://online.wsj.com/article/SB116607104815649971.html?
Last
Semi Roadblock Cleared?
http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=196604245
New
Qualcomm COO Shares OFDM Vision
http://www.eetimes.com/showArticle.jhtml?articleID=196603892
Qualcomm
Looks Outside For Help
3G
Comes To China?
http://www.forbes.com/2006/12/07/china-telecom-3g-debut-biz-cx_jc_1207china.html?partner=telecom_newsletter
Is
WiMAX Going Places? It Depends On Who You Ask
http://www.edn.com/article/CA6399977.html?partner=enews&nid=2019&rid=2052959400
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