powered by GlobeinvestorGold.com

Dale Jackson

In this Issue

Return to Silicon Valley

Dale Jackson

TORONTO (GlobeinvestorGOLD) - The third largest city in the United States wants to go wireless by early next year. Last month Chicago launched an initiative to expand the hundreds of Wi-Fi hotspots in city coffee shops, bookstores and libraries into a wireless broadband blanket covering all 228 square miles of the windy city.

Chicago is following the lead of Philadelphia and San Francisco in tendering the job out to technology companies who will find a way to enable residents and visitors to connect to the Internet from anywhere within the city limits, any time.

The biggest player in the municipal wireless game is Atlanta-based Earthlink Inc., which is currently building a 135 square mile network in Philadelphia. Under the terms of the agreement with the municipal government, Earthlink will charge a wholesale rate of $9 (U.S.) a month to service providers that will in turn resell access to the public. Earthlink now has an entire division trying to ink deals with America's 50 largest cities.

Unfortunately for Earthlink that success on main street U.S.A. hasn't translated into much excitement on Wall Street. The company's stock (ELNK Nasdaq) trades at a third of its 1999 tech-bubble high. It's a similar story for Silicon Valley tech giants like Intel (INTC Nasdaq), Cisco Systems (CSCO Nasdaq), and Sun Microsystems (SUNW Nasdaq). One-exception is Apple Computer (AAPL Nasdaq), which has seen its stock nearly double from its year 2000 high thanks to the success of the iPod.

But the iPod's splash on the consumer market is just a drop in a flood of technical advances washing into our homes and workplaces over the past five years. During a time of unprecedented change on a mass scale Wall Street has responded with one huge yawn. "Businesswise the tech sector is as dynamic as ever in terms of earnings and growth", according to Peter Hofstra, senior investment analyst with AIC Limited. He co-manages the $54-million AIC Diversified Science and Technology fund and is paying close attention to the rapid growth of wireless broadband and the popularity of MP3 technology and High Definition Television.

The problem, according to Peter Hofstra is twofold: "Investors are still hungover from the 1999-2000 tech crash ... and they're chasing resources and income trusts".

Nasdaq 100

A ten year graph of the Nasdaq 100 tells the tale. From early 1996 to the late winter of two-thousand the tech-heavy index skyrocketed from 1,000 points to 5,000. Investors felt the profit potential for some technology companies was so great they bid up the price of their stocks to hundreds of times earnings.

They were wrong and they admitted it. The Nasdaq went into a freefall plunging 80 per cent by the summer of 2002 to right back near the 1,000 mark. Since then the Nasdaq has slowly climbed its way out of the tech wreck to a new five-year high just under 2,300. Peter Hofstra says technology has been oversold and in many cases the climb hasn't even brought it near its fair market value. He says multiples aren't everything but he takes an extra long look at a stock trading at 15 times earnings or lower. "The market has not rewarded tech" he says. "It's fair to say the Nasdaq will at least outperform the S&P 500" he adds, calling for a doubling of the Nasdaq within the next seven years.

That's not to say there's no froth on the Nasdaq. The alarm bells start ringing for Peter Hofstra when multiples hit 50. "Google and Apple are overvalued" he says.

So called bargain stocks like Maxim Integrated products, Dell Inc., Cisco Systems and Microsoft are starting to pay off for the AIC Diversified Science and Technology fund, which is up 4.2 per cent since the beginning of 2006. After consistently underperforming the science and technology group average and the Nasdaq Composite, it's begun posting above average returns.

The fund that leads the pack in the post tech-wreck recovery is the Northwest Specialty Innovations fund managed by Bob McWhirter of Selective Asset Management. Over the past five years it has returned an average 10.6 per cent annually.

It parts ways with many tech funds by holding large chunks of Canadian tech companies outside the Nasdaq 100 such as CAE, Aastra Technologies and Zarlink Semiconductor.

But technology has had more losses than wins over the past five years with the average tech fund holder facing a 13 per cent annual decline. Five years is also about how long there's been talk of a tech turnaround. All the technical advances over that time can never replace good old fashioned patience.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

Back to top