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2HRS2GO: ICG not a CMGi clone

SAN FRANCISCO -- Hearing the co-founder of Internet Capital Group (Nasdaq: ICGE) reminded me of the fast-talking guy in those FedEx commercials from the 1980s.

"And that was on decaffeinated coffee."

"I think he drank a whole pot."

"Did he take a single breath in that whole time?"

You could have provided a day of electricity for the entire Bay Area with the nervous, almost frantic energy thrown off by Kenneth Fox during his presentation yesterday at the Banc of America Securities Technology Week 2000 conference here in San Francisco. As head honcho of ICG, Fox probably needs every bit of it to fuel his ambition to become Your B2B Overlord.

Have an opinion on this?

When ICG went public last year, many observers likened it to a CMGi wannabe. CMGi's own CEO, David Wetherell, not so long ago complained his company wasn't getting the valuation of ICG.

Next thing you know, NASCAR ace Jeff Gordon will compare salaries with F1 star Michael Schumacher. Naturally, any racing fan would dismiss that as absurd; both guys drive cars, but their jobs have nothing in common.

You can say the same thing about CMGi and ICG, if Fox's description of his firm is accurate. ICG and CMGi invest in Internet firms, but that's where the similarity ends.

CMGi nurtures content companies like Lycos (Nasdaq: LCOS), Web media specialists like Engage Technologies (Nasdaq: ENGA), or the occasional Internet technology provider. There's some overlap with ICG, but the latter largely spends money on unsexy firms like plastics industry distributor Commerx, supply chain software vendor Syncra Systems, or soon-to-be public cattle specialist eMerge Interactive (Nasdaq: EMRG).

Speaking of IPOs, you can count on CMGi to either sell its companies or guide them toward an IPO. That's how CMGi makes money. Contrast that with Fox's attitude:

"When things have value, we hold them in perpetuity."

General Electric (NYSE: GE) stands as Fox's model. GE commands large market shares in each of its major businesses, whether it's media, appliances, electrical products, financial services or power plants. And most of GE's companies are business-to-business.

ICG envisions itself as the GE of the Internet -- all of ICG's holdings are B2B companies. "We are a next generation holding company," he said.

Fox has ICG targeting the 50 largest global business markets, with the goal of owning 33 to 85 percent of the top online firm in industry. "This is the cheapest time to buy market share," Fox believes.

Between 1996 and 1999, ICG's annual spending on acquisitions rose to $319 million from $14 million.

I'm not sure how ICG brings all these companies together in a coherent operation, but then again, how many people outside of Jack Welch and his inner circle can explain GE's diverse operation? The difficulty hasn't stopped GE stock from rising steadily throughout Welch's tenure.

ICG says it provides services, management expertise and board guidance, and sharing of best business practices to its holdings.

Also worth noting are two advantages Fox didn't bring up: the security of being in a larger organization; and most appealing, a fat check for the acquisition target's owners.

What about fat profits for the investors who have driven ICGE shares into the stratosphere? Currently ICG's stock value (like CMGi's) is based on its assets, Fox noted. Four or five years from now, Fox said, ICG will be valued on its cash flow. So presumably (that's my presumption, not Fox's statement) ICG will generate at least an operating profit by 2005.

ICG hasn't been around publicly traded long enough to fairly judge its performance, but it's hard to disagree with the basic strategy.

Unfortunately for those who want quick-hit-profit-now results, you'll have to wait awhile for the full fruits of this garden. "Our agenda here is not to take a company public, our strategy is to build a market leader 10 years from now," Fox said.

Let's just hope Fox can keep his energy up for that long.

Other issues:

  • Corning
  • (NYSE: GLW) "Most of you know about telecom, most of you are probably only interested in telecom, but you're going to listen to this anyway," Corning COO John W. Loose told his Banc of America conference audience.

    Telecommunications-related business is expected to generate 70 percent of Corning's revenue this year, so the crowd's single-minded focus was understandable. But (partly because of time constraints) Loose ended up spending the longest portion on Corning's oft-overlooked but rapidly growing LCD business.

    Surging demand for flat panel displays -- whether for desktops, laptops, notebooks, Palm Pilots, or anything else that needs a screen -- is supercharging Corning's liquid crystal display unit. "The stars are really aligned for this technology," Loose said. "This is a real case of Corning (being) patient (with) money ... If we could supply all the demand, we would have well over 80 percent of the market."

    Corning currently sees 45 percent annual growth for the overall LCD market and 50 percent growth this year for its own division. At that rate, it won't be overlooked for long.

    Oh, by the way, the company sees 30 percent overall growth for its telecom products business, including 50 (and possibly 70) percent growth for photonics. Corning's EPS this year should improve 20 to 25 percent, Loose said.

  • Broadcom
  • (Nasdaq: BRCM) While we're on the topic of companies organized around investment themes, it's worth noting Broadcom sees itself as "The Mutual Fund" of high speed communications. "There's not one company that we compete with everywhere," CFO William Ruehle said during his BofA talk yesterday.

    In each of its two of its biggest markets, cable modems and set-top boxes, Broadcom claims at least 90 percent of the market. In a third, high speed networking, the company sees itself with a 60 percent share. Now that's Wintel-like dominance -- all you need is a DOJ antitrust investigation and the picture would be complete. Not that I'm advocating one, mind you.

    Broadcom also gets a bit of revenue from xDSL, wireless and home networking products. On that last one, Ruehle offered an unintentionally-frightening vision of the present: "You can ultimately boot up the whole house ... This is not something that's in the future, this is here today."

    Great, now I can Blue Screen my entire home.

    On a more relevant note for investors, Broadcom's solid presentation offered no reason to doubt this company's momentum. With 20 percent of revenues pouring into R&D and an operating margin of 30 percent, it's hard to dislike this company from an operational standpoint.

  • Microsoft
  • (Nasdaq: MSFT) Other writers have mentioned this before, but it's still remarkable to see how all Microsoft executives adopt the same Gatesian speaking mannerisms: the frequent gestures; standing slightly back from the podium while keeping one hand in a pocket; slightly overdone stresses that seem to emphasize every third or fourth word.

    They were all on display this morning -- along with just a touch of Steve Ballmer's legendary loud cadences -- as new Microsoft CFO John G. Connors made his investor conference debut this morning at Banc of America event.

    Oh, you want know about the meat of his speech? I'd mention it if there was any. Connors played things safe and spent 45 minutes on the same theme Microsoft executives have been espousing in speeches over the last several months: we're going to dominate every Internet device in the world. God forbid a CFO provide financial and operational details at an investment show.

  • WWF
  • (Nasdaq: WWFE) It didn't explicitly say so in last year's IPO prospectus, but I remember getting the impression the money raised would largely be used for an Internet expansion. Now WWF head honcho Vince McMahon wants to spend $75 million of shareholder dollars on bad football?

    Vince, you've taken too many Stone Cold Stunners. Take a look at your record outside of wrestling Remember your foray into boxing? You might be the only one who does; everyone else would prefer to forget about Sugar Ray Leonard vs. Donny Lalonde, including Sugar Ray. And whatever happened to the World Bodybuilding Federation?

    Vince, recall your football predecessors. The World Football League failed despite the presence of some big names like Larry Csonka. The USFL collapsed in spite of megamillionaires like Donald Trump backing it, world class talent like Herschel Walker, Reggie White and Steve Young playing in the games, and major markets hosting them.

    You think bringing "WWF Attitude" will attract new fans to football? News Flash: Fox already brings as much attitude as football fans can stomach.

    Even the WWF's underwriters are skeptical about the XFL. Wit Capital analyst Jordan Rohan today downgraded WWFE to "venture" from an "outperform" rating, slashed EPS and cash flow estimates.

    I wonder if the McMahons are doing this because they see a ceiling for pro wrestling's growth. There's only so much wrestling you can throw out there, so maybe the WWF wants to find another way of tapping into its core demographic. Not a bad idea, but the NFL has the gridiron locked up. Maybe xTreme sports instead? 22GO>