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Sun dismisses dot-coms at conference

According to the advertisements, Sun Microsystems is "the dot in dot-com." But according to the balance sheets, Sun is beholden to the old economy.

SAN FRANCISCO--According to the advertisements, Sun Microsystems is "the dot in dot-com." But according to the balance sheets, Sun is beholden to the old economy.

Sun chief financial officer Michael Lehman said that about 90 percent of the company's revenue comes from Fortune 1000 companies eager to build their e-commerce divisions and bolster their Internet infrastructure. Only about 10 percent of revenue comes from Internet start-ups and Silicon Valley dot-coms.

"The massive growth that we're seeing is largely driven by the buildout of the massive computer structures in the Fortune 1000 companies," Lehman said today at the Chase H&Q Technology Conference in San Francisco. "You can't turn back to the typical companies: Every single one is trying to figure out what their e-commerce strategy is."

Sun's reliance on the world of smokestacks and heavy manufacturing doesn't make for great marketing, and it's unlikely that Sun will ever officially adopt the slogan that Lehman facetiously coined in a slide presentation today: "We're the 'o' in 'old economy.'"

But Sun's emphasis on the brick-and-mortar stalwarts may translate into stable earnings as stock market gyrations rock the valuations of dot-coms.

According to Chase H&Q chief executive Dan Case, public companies represented at the seminal Chase H&Q Technology Conference this week are trading about 40 percent lower than their 52-week highs. Case and other experts predict a shakeout in the technology sector that gives small players few choices other than to be acquired or to go out of business.

Lehman agreed that staking Sun's fortunes on the relatively unsteady lot of dot-coms would be a risky strategy. Instead of bragging about sexy e-commerce players who use Sun microprocessors and software, Lehman noted that one of Sun's newest clients is Harrods of London--the paragon of old-world retailing.

"Are we interested in dot-coms? Absolutely...Are they all going to succeed? Absolutely not," Lehman said. "We're going to pick enough winners that we're going to do fine in that space. But no more than 10 percent of our business is based on start-up or dot-com activity."

Sun shares closed down $5.13 today at $85.38.

Dell touts services plans
Dell Computer may be best known for its direct sales of laptops and desktop computers, but it wants to lay claim to being the premier one-stop shop for every company's or individual's digital needs.

Five years from now, said Dell chief financial officer Jim Schneider, Dell will perceive itself not as a computer dealer that competes against Compaq Computer and IBM, but as a full-service computer consulting and sales behemoth that competes against Sun Microsystems and other software and professional services giants.

"Dell will help companies build online businesses of all sizes," Schneider said Monday at the Chase H&Q Technology Conference here. "The more we can push out our enterprise server and storage business, the better...Our core business is very sound and growing, but again, we've got a big push."

One of Dell's biggest expansion efforts centers on consulting services--especially to so-called old economy Fortune 1,000 companies that want to build the e-commerce divisions of their businesses. The Round Rock, Texas-based PC maker has become a model of direct computer and software sales online, and it hopes to sell that e-commerce expertise to other businesses.

Schneider estimated that sales, hosting and consulting services could eventually become a $10 billion-per-year business for Dell. The company expects to grow the division by 50 percent annually for the next several years, working with consulting partners such as Arthur Andersen. The company had revenues in fiscal 2000 of $25.3 billion, and it's expected to top $32 billion in fiscal 2001.

Dell conducts about $40 million per day in Internet transactions, with online sales accounting for about half of the company's total business. If the portion of the company devoted to online sales were an independent company, Schneider said, it would rank No. 137 on the Fortune 500 list of America's largest companies.

Dell forecasts that global e-commerce transactions will reach $2.5 trillion in 2003--a 100 percent compounded growth rate from 2000 levels. The number of people using the Internet for transactions will double to 500 million in 2003 and will top 1 billion by 2010. Meanwhile, businesses worldwide are expected to spend $370 billion on Internet infrastructure in 2003.

Expanding from the company's core business of direct computer sales is a shrewd move as the margins in that arena become thin, analysts said. Technology-oriented investment bank Chase H&Q advises clients to buy Dell stock.

"We view Dell as one of the leaders among the PC vendors in moving to leverage the Internet, well positioned to benefit from the Windows 2000 launch and transitioning its mix to more enterprise systems," analysts Walter Winnitzki and Georgia Fountoulakis wrote in a report prepared for the conference. "As a result, Dell is likely to record the strongest earnings growth in the group and could once again be in a position to possibly exceed (earnings per share) expectations, both of which bode well for a higher share price."

Dell shares closed down $1.94 today at $47.94.

Oracle trims the fat
After spearheading an ambitious campaign to reduce costs nine months ago, a top Oracle executive said today that the company is poised to double its original cost-cutting target.

Executive vice president Gary Bloom said the company will easily exceed its initial goal of shaving $1 billion from operating expenses in 18 months. Although Oracle hasn't officially changed that estimate, Bloom said the company is on schedule to achieve $2 billion in cost reductions in 18 to 24 months. The global cost-cutting campaign began in August 1999.

"We're flying through the original goal," Bloom said today. "We need to consider something more aggressive."

Oracle shares closed down $4.50 at $72.31 today. In the past 52 weeks the shares have traded as high as $76 and as low as $11.28, adjusted for splits.

Bloom also said that Oracle, a Redwood City, Calif.-based software developer specializing in database servers for businesses, will soon have more people using and helping to develop its software than Microsoft, the world's largest software provider and Oracle's longtime nemesis.

Bloom said Oracle has about 750,000 developers using Oracle technology, compared with about 1.1 million using Microsoft products. He would not specify a time frame for dethroning Microsoft.

Oracle achieved its cost-cutting goal by liberally using its intranet to make worldwide operations more efficient. Oracle, which sells the same software and processes to its clients, said other businesses that follow the Oracle model may achieve cost reductions from 15 percent to 50 percent without reducing the quality of customer service.

The company didn't dramatically slash overhead in any one department. Instead, it wrung relatively small amounts from various offices around the world, bringing the savings total to nearly $1 billion.

For example, instead of requiring employees to fill out paperwork for expense reports, Oracle now allows them to fill out reports online. Cost savings: $6.3 million per year. Allowing employees to fill out purchase orders online saves about $11 million, not including the economies of scale the company may achieve by participating in online buying groups with competitors.

Oracle has reduced its number of mail servers from 97 worldwide to fewer than 10 within the past year. The conservative cost savings estimate: $11 million. Eventually the company will have a single global server based in the United States that serves all of its 43,000 employees around the world.

The company also used to have more than 40 data centers around the world. Within the past year, Oracle has shuttered data centers in Canada, Latin America and Europe. The cost savings estimate over two years for global information technology operating expenses: $200 million.

"Data centers are like trophies: Managers want them to show them off to customers," Bloom said. "But you don't need all of them."

Oracle has also achieved cost savings through a "self-service" customer support program. The company has streamlined its support department so that software users can solve problems online without having to talk to an Oracle employee.

Today, roughly 4 percent of customer support questions come in electronically. Of those, roughly 30 percent are answered without human interaction over the telephone. If Oracle can increase that number to 10 percent, Bloom estimated, it will save $550 million.

Nokia's wireless Net
No longer satisfied with dominating the high-growth arena of cellular phone handsets, Nokia has staked its future on the evolution of the Internet.

Nokia chief technical officer Tom Lyons predicted that the Internet and mobile telephony will collide within two years. By the end of the year, the number of mobile phones sold worldwide will outstrip the number of personal computers sold. By 2002, he said, at least 1 billion people around the world will have mobile phones.

Most of them will exploit the Internet primarily through their cell phones instead of through their PCs, Lyons said, and the importance and popularity of the World Wide Web as a means of exploring the Internet will fade.

"The Web will be forgotten with the advent of the Internet phone," Lyons said. "It will be like email, which was dwarfed by the Web."

Nokia, which had 1999 net sales of $19.9 billion and is the world's largest see story: Chase H&Q Technology Conference schedule supplier of mobile phones, has significantly revised its business strategy to capitalize on the convergence of mobile telecommunications and the Internet. The company wants to anchor itself as a primary provider of virtual private networks (VPNs), which help insulate corporate networks from the broader Internet and its security threats.

Nokia, which derives 67 percent of revenue and 81 percent of operating income from the mobile phones division, is increasingly focused on improving online security and access so that mobile phone users won't have problems conducting consumer or business transactions.

"The big problems are reliability, security and scalability," Lyons said. "Networking and computing companies aren't addressing this. Neither industry is really stepping up to the plate. This is where we see Nokia focusing: Internet security products, firewalls, private networking, wireless application protocol."

The 56,000-employee company, based in Helsinki, Finland, is gradually building a presence in Silicon Valley. About 400 employees work at the regional office in Mountain View, Calif.--the company's first major business group in the United States and one of the largest outside of Finland.

Individual consumers will probably be the first to exploit the emerging mobile-Internet technology, Lyons said. For example, a consumer could use a mobile phone to check for lower prices while visiting a car dealership. But Lyons said businesses that use the Internet primarily from PCs will have difficulty making a quick change to mobile Internet access.

"I think it's going to be somewhat chaotic for a while," he said. "I believe that in the collision of the wireless world and the Internet, there are going to be many times you're going to have to revisit your business models, many times over...That's what's going to cause the greatest friction."

Focal's finances
Shares of Focal Communications rose today after the company withdrew its proposed offering of an additional 7 million shares.

The company, which supplies data and voice services to corporations and ISPs, cited poor market conditions as the main reason.

CEO Robert Taylor said that the company is well funded until mid-2001 and is considering a financing round to take the company into 2002.

Taylor gave no indication of when the company might try to make another offering.

Shares of the Chicago-based company rose $1.13 to $27.88 today.