Imagining tech's post-nuke winter? A preview

The lousy economy means two things: Web 2.0's 15 minutes of fame are about up and the companies with deep pockets are about to kick it into high gear.

On a day after the stock market suffered through one of its classic fits of pique at the news du jour, it's hard to find any bright side to a 382-point loss. But something's happening here and--apologies to the immortal Buffalo Springfield--what's taking place is becoming increasingly clear.

The conventional wisdom is that these are (among) the worst of times, with the tech economy hostage to the vagaries of the larger global economy. I suppose that it's reasonable to expect things to get a lot worse before they get any better. But how about some historical perspective?

As bad as things seem--and they ain't good--this still would not be the first time that Silicon Valley and the larger technology sector stumbled through a slowdown.

And keep in mind that the big innovations hatched during the times of trouble only became visible in history's rear-view mirror: 20-20 hindsight is never in short supply. That was true in each of the past three decades, and there's no reason not to believe it won't be equally true this time around.

But here's where the storyline needs an edit.

Ever since Wall Street's fall meltdown, the mantra has been that the reduced access to capital threatens to choke off technology innovation and force a lot of start-ups out of business and, oh, wouldn't that all be horrid for the "community."

I'm not so sure about that. And besides, not all innovation is grinding to a stop.

On the surface, there's no doubt that a number of start-ups will get wiped out by what Marc Andreessen once glibly referred to as the coming "nuclear winter" (Andreessen had no idea how prescient he would turn out to be.) But isn't that the way capitalism is supposed to work? And frankly, the world is not going to miss yet another widget maker or a social network for left-handed gimps.

Some perspective helps. For instance, the more interesting Web 2.0 companies aren't in dire straits. Andreessen's own Ning pocketed $44 million in July 2007 and another $60 million last April. Meanwhile, Facebook received $240 million from Microsoft in October 2007, giving Mark Zuckerberg more freedom to build the service brick by cyber brick.

The fact is that Web 2.0 has played out. The VCs who invest in this sort of thing continue to argue otherwise, but I've tuned them out. Nobody's offered a convincing explanation as to why Web 2.0's 15 minutes of fame aren't about up.

At the other end of the spectrum, this horrid economy is creating a paradox: the strongest technology companies are actually doubling down to extend their advantage.

Just this week, Intel disclosed its plans to spend $7 billion over the next couple of years. The investment will go to upgrade Intel's manufacturing technology here in the U.S. (stimulus bill or no stimulus bill) with an eye toward the introduction of 32-nanometer technology. That is quite a sum, but consider that Intel had about $12 billion in cash and investments on its balance sheet at the end of its last quarter. In other words, there's a lot more where that came from.

Elsewhere, pay attention to what's taking place at Cisco Systems. Talking with analysts earlier this month, CEO John Chambers didn't seem overly concerned as he warned sales might decline by as much as 20 percent in the current quarter. In fact, he predicted that a stronger Cisco will ultimately emerge, ready for the recovery.

Maybe he was telegraphing what was in store. On Monday, Cisco announced that it was selling $4 billion worth of bonds in what's the probably prelude to another Chambers shopping expedition. A company representative says that $500 million will go to pay down existing debt. That still leaves $3.5 billion in Monopoly money with which to go on a spree.

And it will. This is a company that thinks big and, more important, thinks strategically. Cisco bought Linksys for $500 million in 2003 A couple of years later, it paid $6.9 billion for Scientific Atlanta. And in 2007, Cisco spent $3.2 billion for WebEx .

Chambers learned the hard way how to survive a rapid downturn. He was at Wang when it fell apart, and he had to make the tough choices on layoffs at Cisco when the dot-com boom ended. Ultimately, his quick decision-making allowed Cisco to emerge from the bust faster than many other tech companies. It wouldn't be a shock to see that same savvy management this time as well.

And like his counterparts at Intel, Chambers has money in the bank while so many others are struggling to hang on. You know that old cliche about cash being king? These days, it's more like the Holy Roman Emperor.

 

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