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Tech Industry

Oil is hot, tech is not

CNET Editor Jeff Pelline dares to revisit the 2-year-old debate: "Does IT matter?"

Nearly two years ago, a Harvard Business Review editor crashed our tea party--that would be the one in tech wonderland--with the audacious claim that "IT doesn't matter."

Then Larry Ellison (Mr. Audacious Himself) declared "the end of Silicon Valley as we know it."

The reaction was swift.

Carly Fiorina told Hewlett-Packard customers and the rank-and-file that the HBR article by editor-at-large Nicholas Carr was "dead wrong."

Steve Ballmer said: "Our fundamental response to that is hogwash." Bill Gates added: "We disagree with all this." And a Microsoft senior vice president told CNET's Martin LaMonica: "It's insanity."

Scott McNealy, no less, sided with Gates. As the Sun Microsystems CEO put it: "To get an advantage, I need to know more about what happened in the last six hours than my competitor. It won't happen through smoke signals...IT is critical to make that happen."

Intel chief executive Craig Barrett, Cisco Systems CIO Brad Boston, VCs including Bill Gurley and Stewart Alsop, and the trades--Computerworld, eWeek and Infoworld--along with Fortune magazine, all pooh-poohed the idea.

"Silicon Valley isn't dead," Alsop stated in Fortune. "It's just recharging its battery."

Carr's point is that IT follows a pattern that is "strikingly" similar to railroads or electric power.

On Wall Street, IT doesn't matter, at least not much.
"For a brief period, as they are being built into the infrastructure of commerce, these 'infrastructural technologies,' as I call them, open opportunities for forward-looking companies to gain strong competitive advantages," Carr said. "But as their availability increases and their cost decreases--as they become ubiquitous--they become commodity inputs."

As for Ellison, he said: "Well, Silicon Valley had this view of themselves or we had this view of ourselves that we'd be forever young. There would always be lots of little start-ups funded by venture capitalists that would become giant companies.

"The fact is that the computer industry, like every other industry before it is going to mature and we're going through that maturation process right now," Carr said.

So who's right? Well, the proverbial fat lady is still singing merrily, but to borrow a phrase from my hero, Columbo, "Hmmm. They might be onto something."

On Wall Street, IT doesn't matter, at least not much. Oil is hot, tech is not. That's right, an icky commodity, not a server, is what's creating the buzz. columnist Jim Cramer echoed a sentiment last week that he is hearing on the trading floor.

"Enough of these Ciscos," Cramer wrote. "I can't take it anymore. I want something that goes up."

You technophiles might want to blame this injustice on President Bush. But beware: More people are realizing that oil prices will remain higher (even with an expected correction), thanks to rising demand in countries such as China and India.

If the low pulse rate beating in the tech sector in recent years isn't enough to remind you, I created a chart (thanks to, Mr. McNealy, not smoke signals): It tracks the stock price performance of Microsoft, HP, Sun, Intel and Cisco since mid-2003.

Microsoft, Cisco, HP et al are bellwethers, but IT is much more than that.
From July 9, 2003, to Feb. 5, 2005, it shows Cisco, Sun and HP all down, Microsoft and Intel up about 2 percent, the Nasdaq up more than 17 percent, and the Dow Jones industrials up the most--at 18.41 percent. (There's no URL for this, or I'd link to it.)

"Lies, damn lies and statistics," you say. OK, let's take a look at what's been happening in the real world. Forget, for instance, that TiVo-backer Alsop left his big VC firm for something "more individualized," or that ad lineage at the trades remains slim.

Consider this:

•  Carly "you're dead wrong" Fiorina was ousted as HP's CEO after her acquisition of Compaq Computer "didn't matter" when it came to turning around the legendary computer giant. HP is rudderless and should consider a break up or even selling itself, many analysts contend.

•  Microsoft's growth has slowed--gadzooks, it even pays a dividend now--and its track record in products has been mixed. Redmond continues to improve Windows security, XBox and MSN. But Longhorn--supposedly the kindling that's going to light a bonfire under IT--was significantly scaled back and its launch was postponed.

•  Sun's stock has stagnated in the $3-to-$5 range for two years. Despite some calls for "new blood," McNealy is still the CEO, although he promoted Jonathan Schwartz to No. 2. Management hopes that CIOs will open their wallets this year--just like last year and the year before.

If that's not enough, IT consolidation is in full swing: Oracle bought PeopleSoft after a drawn out process, and Symantec bought Veritas for $13.5 billion--the biggest software deal ever.

"Whatever," you might say, making the shape of a "W" on your hands. Microsoft, Cisco, HP et al are bellwethers, but IT is much more than that.

To be sure, IT is not dead.

Google's initial public offering reminded us of that. Although its stock slumped last week amid fears of an online ad slowdown, the IPO was one of the year's biggest business news stories. went public in another successful offering. Next year Silicon Valley upstarts such as TellMe are expected to go public.

Open source continues to make inroads, too, although that old bugaboo--the "business model"--worries people.

Steve Jobs is rebuilding Apple Computer into more of a consumer electronics, not just a computer, powerhouse. The iPod, barely 3 years old, now accounts for one-third of Apple's sales and dominates the MP3 player market. I also think the Mac Mini portends Apple's push into the Media Center business, but we'll discuss that at a later date.

OK, you ask, so does IT matter nowadays or not? Is Ellison right? Sure IT matters, and sure Silicon Valley will continue innovating.

But it just might not be the growth business that it was previously.

Nowadays--as hard as it is for technophiles to swallow--IT is playing second fiddle to Big Oil.