Follow the Money – 60-Day Cash-Out
SGI's honeymoon ends? During an interview in the Nov/Dec 1993 issue of the Harvard Business Review, Silicon Graphics Inc. CEO Ed McCracken said that even though the movie business only represents about 5 to 10 percent of SGI's total business, his engineers spend a great deal of time with special-effects houses such as Industrial Light & Magic who push them to stay on the leading edge. Well, that may be, but it's whispered around Tinseltown that the time has probably come to start turning in the old SGI hardware for the infinitely less expensive PC. And frankly, I find the argument so compelling that I am dumping all of my SGI stock along with my PC-related holdings.
The general concern is that the Mountain View, California-based company has no long-term strategy to stay ahead of the price-performance curve, even though competitors are pounding the company from all sides. It seems unrealistic to think that the RISC-chip development program run by SGI's subsidiary, MIPS Technologies, will keep pace with the billion-dollar Motorola-Apple-IBM joint-development project for the Power PC. SGI should follow the example set by Hewlett-Packard last year and form a strategic relationship with a major chip manufacturer like Intel. SGI's sales volumes just don't support the investment in a proprietary processor design. Also, stiff competition from Microsoft will soon be here. Animators will be able to get their hands on a Windows NT workstation running multiple P6s in conjunction with 3-D graphics hardware and packed to the gills with Microsoft's Softimage software. All at a fraction of the price of an SGI Onyx system.
As Sun Microsystems' co-founder, Bill Joy, observed during a recent coffee break, "What SGI has on its side right now is momentum, but that can't last forever." He paused and remarked, "I always did think of SGI as the last minicomputer company." He might be right, but I could just as easily be saying the same thing about Sun in next month's column.
While the TWIT$ fund saw a significant drop in overall performance this month, a closer look shows that the majority of the fund, and the market as a whole, held up fairly well. Our big loss came from Netcom's jump of almost 9 points, but I'm still confident in our short position. Netcom is enjoying momentum from a market that is still hyped up over the Internet. It's only a matter of time before people realize that Internet access is becoming a commodity service and Netcom's stock falls accordingly.
Information provided here is based on a combination of public data, professional insights, and gossip overheard while tanking up on espresso with Sun co-founder Bill Joy, studio hopping in Hollywood, and conversing with top stock-picker Michael Murphy. The TWIT$ fund is a model established by Wired, not an official, traded portfolio. Readers who use TWIT$ for investment decisions do so at their own risk.
The Wired Interactive Technology Fund (TWIT$)
Company Primary Business Symbol Shares Price Aug 1 Action
| Brøderbund Software | CD-ROM sw | BROD | 1,100 | 68 1/16 | + 5 9/16 | sell
| Silicon Graphics Inc. | Multimedia hw | SGI | 5,200 | 40 3/4 | + 1/8 | sell
| Mobile Telecom Technologies Corp. | Mobile computing | MTEL | 3,300 | 29 5/8 | + 3 1/4 | hold
| Motorola Inc. | Communications/hw | MOT | 1,600 | 74 7/8 | + 6 3/8 | sell
| Cisco Systems Inc. | Connectivity | CSCO | 2,500 | 54 3/4 | + 4 3/8 | hold
| Microsoft Corp. | Software | MSFT | 1000 | 89 1/2 | – 1 7/16 | hold short
| Apple Computer Inc. | Hw/sw | AAPL | 6,000 | 43 1/2 | – 3 7/16 | hold
| Oracle Systems Corporation | Database sw | ORCL | 6,000 | 40 5/8 | + 1 1/2 | hold
| NETCOM Online Comm.Service Inc. | Internet provider | NETC | 15,000 | 34 7/8 | + 8 7/8 | hold short
| ADC Telecommunications | Digital access network | ADCT | 4,000 | 38 1/2 | + 3 3/8 | sell
| Global Village Communications Inc. | Communications hw/sw | GVIL | 3,800 | 15 7/8 | + 1/2 | hold
| Intuit, Inc. | Financial sw | INTU | 1,200 | 86 5/8 | + 11 1/8 | sell
| General Magic Inc. | PDA sw | GMGC | 4,500 | 17 3/8 | + 4 | hold short
New Stocks
| Sun Microsystems, Inc. | Hw/sw | SUNW | 3,000 | 45 5/8 | buy
| Sybase inc. | Database sw | SYBS | 4,000 | 33 1/4 | buy
| 3COM Corporation | Networking | COMS | 1,900 | 71 1/2 | buy
| LSI Logic Corporation | Semiconductors | LSI | 3,000 | 44 5/8 | buy
| Applied Materials, Inc. | Semiconductors equip. | AMAT | 1,300 | 98 3/4 | buy
Portfolio Value $1,314,493.75 (+31.45% overall) -6.67%
Legend: This fund started with US$1 million on Dec. 1,1994. We are trading on a monthly basis, so profits and losses will be reflected monthly,and profits reinvested in the fund or new stocks.
Information provided here is based on a combination of public data, professional insights, and gossip overheard while tanking up on espresso with Sun co-founder Bill Joy, studio hopping in Hollywood, and conversing with top stock-picker Michael Murphy. TWIT$ is a model established by Wired, not a traded portfolio. Wired readers who use this information for investment decisions do so at their own risk.
Anthony B. Perkins (tony@herring.com) is editor and publisher of The Red Herring, a technology business magazine published in San Francisco.
