On the High Speed Wagon-er

10/08/2004 12:00 am EST

Focus:

Garrett Van Wagoner

President, Van Wagoner Capital Management

"The future for technology is absolutely phenomenal," says portfolio manager, Garrett Van Wagoner. "In particular, the theme of pushing high speed data down to mobile devices is coming and it is going to hit like a tidal wave." Here are his favorite ways to play this trend.

"I think most of the professional money managers – the big money – came into the business in the late 1990s and they believe a normal technology cycle is 1999-2000, which is that you 'bubble up' and then 'bubble down'. I think a lot of the incremental money on the buy and sell side in the professional world really hasn’t lived through normal tech cycles. The only one they’ve seen is the tech bubble, so they are fearful of that. It’s amazing to watch the youngsters on Wall Street who believe that the inventory correction slowdown is going to result in the type of decimation that we saw in 2000-2002. I just don’t see this happening. Rather, I think that we are seeing a more typical inventory slowdown and not a lasting decline in demand.

"Over the near term, I’m a little bit pessimistic. The presidential cycle suggests that administrations - regardless of party - want to get trouble out of the way early in their terms. So no matter who wins the election, I am a little fearful about the economic outlook for early 2005. But once we come out of that political slowdown in 2005, we will see an explosion in the value of the Internet. The US is now 7th in the world with homes equipped with broadband. This is the first time that the US has lagged in a new technology venture – whether you look at railroads, cars, radio, TV, etc. This is the first time we are trailing, while many second and third world nations are aggressively building their telephone and data infrastructures to allow their citizens to have access to information. My current favorite stocks are those companies that will be providing that increase in bandwidth and technology that we hope to see around the world and in the US in coming years.

"I’d like to offer five ideas around one single theme – and that is the fact that the world, and eventually the US – will see a new wave of technology spending based on driving higher-speed data to multiple devices. This is things such as using a laptop in Starbucks. That’s known as a hotspot, which allows you to connect to the Internet with higher speed than a dial-up. Whether it’s to a phone or a laptop, this phenomenon is going to explode over the next couple of years. I’ve been around tech long enough to know that if you watch the 15 to 24 year olds, you'll see where the world is going. They all have cell phones. They are connected to the world and that's how they live.

"As broadband pushes them to higher and higher speeds, they are going to find more and more applications, such as camera phones and moving pictures. These changes are right around the corner. Did you know that you could now call up your service provider and for a few bucks customize the ring tone of your phone? A rap artist recently went ‘platinum’ with a million downloads of his song as a digital ring tone. So when a phone rings, his song is broadcast. It sound ridiculous, but a million downloads at $2.50 is a good start for a new technology. Believe me, there will be plenty of companies figuring out how to make tremendous gains from this. Right now, the challenge is getting the network ready in all capacities – so my picks hits very specific parts of the network:

"My first investment idea in this theme is focused on the client device – meaning the part you are holding in your hand. A stock with great financial results this year that has been knocking the ball off the cover all summer is Novatel Wireless (NVTL NASDAQ). They provide those little wireless modem cards that go into laptops to allow you to connect to higher speed networks.

"On the network side, we like Di-Tech (DITC NASDAQ). The company has had fantastic results even during the slowdown. One problem is that in order to shove high-speed data down the wireless pipe, you need to have a relatively clean signal – not a lot of noise or interference. This company was in the echo-canceling business, which was used for wireline services to help eliminate echoes. They have moved that product philosophy to the wireless world, to clean up wireless signals.

"We also like two companies that are competing in different areas of the fixed wireless provider market. One is an Israeli company called Alvarion (ALVR NASDAQ) and the other is AirSpan Networks (AIRN NASDAQ). They provide the radios that allow you to broadcast the signals. Signals need to be moved from point to point via the towers that you see around. In addition, signals are moved as point to multi-point, which means at the end, it is sent down to individuals so that they can pick up the signal. Financial results in both of these companies have been extremely strong.

"Now you have the signals, but how is it going to be billed and accounted for? How do you know how long the person was using it? Which ring tone was used? You need the software billing infrastructure to record all this. The 800-pound gorilla in these applications is Comverse Technology (CMVT NASDAQ). So overall, I wouldpoint to thse five companies - all based on the theme of the high speed world coming to you anywhere, anytime."

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