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2HRS2GO: Talking chips, e-commerce and n-branches

Little big news, a few small questions.

How long will the current chip surge last? You know the semiconductor industry is rebounding when analysts start upgrading capital equipment makers, who are typically the last to feel market recoveries. KLA-Tencor, Novellus and Applied Materials have recently gotten positive coverage from several brokerage firms, including Merrill Lynch, BancBoston Robertson Stephens and Warburg Dillon Read.

There's still a long way to go in the current cycle, but what happens after all the chip makers complete their upgrades to 0.18 micron technology? Given the likelihood that the PC market will continue seeing price pressures and gradually slower growth as the market becomes saturated, you have to wonder if the current chip boom will last as long as the previous one.

Count on some industry growth from chips "embedded" in Internet appliances and other new digital devices, but cheap electronics will never generate the rich margins of the PC industry's halcyon days.

On the plus side for investors, if not consumers, the memory chip industry seems to have finally worked through its overcapacity problems, since memory prices are on the rise.



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When will business-to-business e-commerce companies start merging? There's obviously room for multiple players, but the ranks are growing quickly (really quickly). PurchasePro.com (Nasdaq: PPRO) is the latest one to go public, joining the Ariba Inc. (Nasdaq: ARBA), Commerce One Inc. (Nasdaq: CMRC), both of which operate Internet marketplaces. You've got VerticalNet Inc. (Nasdaq: VERT), which runs professional communities. And then there are the older electronic business software players, such as Harbinger Corp. (Nasdaq: HRBC) and Sterling Commerce Inc. (NYSE: SE)

Being a cluelessly old-fashioned thinker, I like the latter two. Harbinger and Sterling have been around long enough to actually be profitable companies, recent problems at Sterling notwithstanding. But given the market caps of the Internet-only newcomers, you have wonder who's going to be buying who.

Ultimately, it may be none of the aforementioned companies. One of the large ERP players (SAP, Peoplesoft, etc.), Microsoft, Oracle or Mr. E-Business itself, IBM, could swoop in.

Will Oracle give us anything to worry about? The database king will report fiscal first quarter earnings after market close today. Although CEO Larry Ellison recently said the quarter was going well, Oracle never really knows until the very end, because many of its transactions don't close until the last weeks of the quarter. The first quarter also is Oracle's weakest, historically. First Call's consensus estimate predicts a profit of 16 cents per share.

Just as important as the actual results will be the breakdown. Oracle needs to show continued growth for its enterprise software, both in back office and front office. The company tore past Wall Street's forecasts in the fourth quarter, but in general, growth in the applications business has been erratic for the last several quarters. If Oracle can produce back-to-back strength in the non-database side, you can probably take it as a sign of good things to come for quite awhile.

What the heck is "seamless n-way branching of digital film"? At least a few people were probably wondering after Imaginon Inc. (Nasdaq: IMON) shot higher today, following its announcement of a new application for Sony Playstation 2 game developers. At one point, shares of the (very) small cap stock had risen almost 62 percent to 4 1/2, though CEO Dave Schwartz is keeping a clear head about the surge. "Well, daytraders are excited, but they're an excitable bunch," he notes.

Imaginon -- among the most heavily traded Nasdaq stocks today on volume of more than 6.2 million shares -- is probably excited too, but at least Schwartz is staying level-headed. The ImaginAuthor tool lets developers create games that can handle video and animation not only from a disc but also from the Internet. It's not the same as streaming media from RealPlayer or Windows Media Player, Schwartz says, because Imagninon's technology provides TV-quality imagery, and its "seamless n-way branching" provides a menu that lets the viewer jump directly to different spots in the video.

Schwartz won't know how many developers are interested in ImaginAuthor until he pitches it at a conference next week in Tokyo. "It may be, to get the ball rolling, we'll have to 'loan' it to a few developers," he says. "That's a possible strategy ... I believe it will be a significant revenue stream in 2000."

Until then, Imaginon will see about as much action from PlayStation as the New York Jets will from Vinny Testaverde this year. But Imaginon could certainly use any boost; the 3-year-old company generated less than $92,000 in revenue for the first six months of this year, while losing more than $3 million.

Market indices were mixed this afternoon. With two hours left in regular trading, the Nasdaq Composite Index was up 17.57 to 2862.34, the S&P 500 lower by 6.01 to 1338.12, and the Dow Jones Industrial Average down 78.84 to 10951.49. 22GO>