Technology issues are leading the bear market down ever lower. Not a week goes by without another chip company announcing a slowdown in orders and corresponding cost reductions and layoffs. Capital is harder to raise, and it's accepted wisdom that venture capitalists will be reluctant to invest in technology since there is no exit route, as new issues dry up on Nasdaq and similar markets in Europe. In short, the euphoria of 1999 has become this year's panic.
Still, there are plenty of reasons to believe tech investments will remain strong into the foreseeable future.
The market certainly has been successful in allocating capital to innovative companies with new business ideas and models. Billions of dollars have gone into new private companies over the last few years and new industries have developed-optical semiconductors, fabless chip companies, Internet infrastructure, supply chain specialists, e-commerce, advanced wireless communications, peer-to-peer software and open-source software. This is the "new economy."
More encouragingly, the new economy is making the old economy more efficient by reducing what economists call "friction." For example, it has never been easier or cheaper for anyone to trade in shares, bonds and other financial instruments, compare retail prices, buy insurance or make international phone calls. It is easier for a company to find people with skills, search for competitor information, research markets and communicate with customers and suppliers.
Technology is as important to the economy as energy and water, and its infrastructure depends on electronic and computer technology-that is, semiconductors. Despite the current slowdown in orders, significant economic factors will keep semiconductor shipments growing.
The most obvious is the convergence of fixed and wireless telecommunications with networking, as Internet technologies become the preferred means to communicate with both voice and data. The third-generation wireless and digital subscriber line infrastructure is being built out and will continue to be, faster than people expect. Higher-speed optical networks will also be built. There is consumer demand for higher bandwidth and higher-value services, and a need for the service providers themselves to grow and add new services.
From an investment and capital perspective, the financial returns that come from a successful technology investment dwarf almost anything else you can do with your money. VCs will, therefore, keep investing in new semiconductor technology companies, as will established semiconductor houses.
Graham Dodgson is Executive Vice President of Marketing and Sales at Aspex Technology Ltd. (Uxbridge, England).
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