on TECHNOLOGY • An in-depth look at the global Technology sector investment universe, including software, computers and peripherals, semiconductors, and more • Tips and tools to develop a Technology portfolio, including identifying portfolio drivers and security analysis • A useful guide for investing in any market condition Foreword by New York Times bestselling author Ken Fisher Fisher Investments on Technology FISHER INVESTMENTS PRESS Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments’ research team, headed by CEO and New York Times best-selling author Ken Fisher, to all investors The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals Books by Ken Fisher How to Smell a Rat The Ten Roads to Riches The Only Three Questions That Count 100 Minds That Made the Market The Wall Street Waltz Super Stocks Fisher Investments Series Own The World by Aaron Anderson 20/20 Money by Michael Hanson Fisher Investments On Series Fisher Investments on Energy Fisher Investments on Materials Fisher Investments on Consumer Staples Fisher Investments on Industrials Fisher Investments on Emerging Markets Fisher Investments on Technology Fisher Investments on Technology Fisher Investments with Brendan Erne and Andrew Teufel John Wiley & Sons, Inc Copyright © 2010 by Fisher Investments All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions Important Disclaimers: This book reflects personal opinions, viewpoints and analyses of the author and should not be regarded as a description of advisory services provided by Fisher Investments or performance returns of any Fisher Investments client Fisher Investments manages its clients’ accounts using a variety of investment techniques and strategies not necessarily discussed in this book Nothing in this book constitutes investment advice or any recommendation with respect to a particular country, sector, industry, security or portfolio of securities All information is impersonal and not tailored to the circumstances or investment needs of any specific person Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com Library of Congress Cataloging-in-Publication Data: Fisher Investments Fisher Investments on technology / Fisher Investments with Brendan Erne and Andrew Teufel p cm.—(Fisher Investments Press) Includes bibliographical references and index ISBN 978-0-470-45237-0 (cloth) High technology industries Investments I Erne, Brendan II Teufel, Andrew S III Title HC79.H53F57 2010 332.63'22—dc22 2009041413 Printed in the United States of America 10 Contents Foreword ix Preface xi Acknowledgments xv Part I Getting Started in Technology Chapter Technology Basics More Than Gadgets A Means Technology 101 Starting Small: Semiconductors Getting Larger: Products and Components 12 Making It All Work: Software and Services 20 Chapter A Brief History of Modern Technology 25 The Snowball Event: History of Semiconductors 26 History of Computers 31 History of Communications 35 History of the Internet 37 Chapter Technology Sector Drivers Economic Drivers 43 43 v vi Contents Political Drivers 57 Sentiment Drivers 61 Part II Next Steps: Technology Details 67 Chapter Technology Sector Breakdown 69 Global Industry Classification Standard (GICS) 69 Global Technology Benchmarks 71 Technology Industry Breakdown 75 Chapter Challenges in the Information Technology Sector 99 Product Maturity and Obsolescence 99 Fighting Maturity and Obsolescence 101 Extreme Fluctuations in Supply and Demand 110 Intellectual Property Threats 113 Chapter A Deeper Look at Current and Emerging Technologies 117 Semiconductor Production Process 118 Emerging Manufacturing Technologies 122 Computer Technology 124 Part III Thinking Like a Portfolio Manager 131 Chapter The Top-Down Method 133 Investing Is a Science 133 Einstein’s Brain and the Stock Market 134 The Top-Down Method 136 Top-Down Deconstructed 141 Managing Against a Technology Benchmark 149 Contents Chapter Security Analysis vii 155 Make Your Selection 156 A Five-Step Process 157 Important Questions to Ask 165 Chapter Upgrading Your Portfolio—Investing Strategies 175 Strategy 1: Adding Value at the Sector Level 176 Strategy 2: Adding Value at the Industry Level 178 Strategy 3: Adding Value at the Security Level 183 Strategy 4: Adding Value in a Technology Sector Downturn 184 Strategy 5: Venture Capital 185 Good Luck! 186 Glossary 187 Notes 194 About the Authors 201 Index 202 Notes 195 13 Gartner, “Gartner Says Worldwide Mobile Phone Sales Grew Per Cent in 2008, But Sales Declined Per Cent in the Fourth Quarter” (March 2, 2009), http://www.gartner com/it/page.jsp?id=904729 (July 21, 2009) CHAPTER 2: A BRIEF HISTORY OF MODERN TECHNOLOGY Computer History Museum, “First Semiconductor Effect Is Recorded,” http://www computerhistory.org/semiconductor/timeline/1833-first.html (accessed July 21, 2009) Computer History Museum, “Semiconductor Rectifiers Patented as ‘Cat’s Whisker’ Detectors,” http://www.computerhistory.org/semiconductor/timeline/1901-semiconductor html (accessed July 21, 2009) Ibid Computer History Museum, “1954—Silicon Transistors Offer Superior Operating Characteristics,” http://www.computerhistory.org/semiconductor/timeline/1954-Silicon html (accessed July 21, 2009) Nobelprize.org “The Transistor—Function,” http://nobelprize.org/educational_games/ physics/transistor/function/intro.html (accessed July 21, 2009) Intel, “Cramming More Components Onto Integrated Circuits,” (April 19, 1965), http://download.intel.com/museum/Moores_Law/Articles-Press_Releases/Gordon_ Moore_1965_Article.pdf (accessed July 21, 2009) Intel, “Our History of Innovation—1968, Intel Corporate Timeline,” http://www.intel.com/ museum/corporatetimeline/index.htm?iid=intel_info+rhc_history (accessed July 21, 2009) Intel, “The Intel 4004 Microprocessor,” http://www.intel.com/museum/archives/4004facts htm (accessed July 21, 2009) Ibid 10 Wade Warner, “Great Moments in Microprocessor History,” IBM (December 22, 2004), http://www.ibm.com/developerworks/library/pa-microhist.html (accessed July 21, 2009) 11 Cliff Edwards, “Intel: Supercharging Silicon Valley,” BusinessWeek (October 4, 2004), http://www.businessweek.com/magazine/content/04_40/b3902032_mz072.htm (accessed July 21, 2009) 12 Patrick Thibodeau, “Obama Lauds Intel Plan to Invest $7B in Chip Plants,” Computer World (February 10, 2009), http://www.computerworld.com/action/article.do?comman d=viewArticleBasic&articleId=9127708&intsrc=news_ts_head (accessed July 21, 2009) 13 Mary Bellis, “Inventors of the Modern Computer,” About.com, http://inventors.about com/library/weekly/aa060298.htm (accessed July 21, 2009) 14 Computer History Museum, “Timeline of Computer History (1961),” http://www computerhistory.org/timeline/?category=cmptr (accessed July 21, 2009) 15 Otto Friedrich, “The Computer Moves In,” Time (January 1983), http://www.time com/time/magazine/article/0,9171,953632-3,00.html (accessed July 21, 2009) 16 Randy Alfred, “April 3, 1973: Motorola Calls AT&T by Cell,” Randy Alfred, Wired (April 3, 2008), http://www.wired.com/science/discoveries/news/2008/04/dayintech_ 0403 (accessed July 21, 2009) 17 CTIA, “History of Wireless Communications From Building the Wireless Future to Expanding the Wireless Frontier,” http://www.ctia.org/media/index.cfm/AID/10390 (accessed July 21, 2009) 196 Notes 18 Symbian Freak, “History of Nokia,” (October 19, 2008), http://www.symbian-freak com/news/008/10/history_of_nokia_corporation.htm (accessed July 21, 2009) 19 National Science Foundation, “The Launch of NSFNET,” http://www.nsf.gov/about/ history/nsf0050/internet/launch.htm (accessed July 21, 2009) 20 Ibid 21 European Organization for Nuclear Research (CERN), “How the Web Began,” http://public.web.cern.ch/Public/en/About/WebStory-en.html (accessed July 21, 2009) 22 Free Encyclopedia of Ecommerce, “Internet Service Provider (ISP)—History And Development,” http://ecommerce.hostip.info/pages/623/Internet-Service-Provider-ISPHISTORY-DEVELOPMENT.html (accessed July 21, 2009) 23 Cisco, “Cisco Systems Corporate Timeline,” http://newsroom.cisco.com/dlls/timeline/2001_index.shtml (accessed July 21, 2009) 24 Free Encyclopedia of Commerce, “Internet Service Provider (ISP)—Proliferation and Consolidation,” http://ecommerce.hostip.info/pages/624/Internet-Service-Provider-ISPPROLIFERATION-CONSOLIDATION.html (accessed July 21, 2009) 25 Paul Taylor, “Does IT Work?: IT-Related Productivity Gains in Decline,” Financial Times (October 21, 2008), http://us.ft.com/ftgateway/superpage.ft?news_id=fto 102120081037417526 (accessed July 21, 2009) 26 Kent German, “Top 10 Dot-Com Flops,” CNET, http://www.cnet.com/1990-11136_ 1-6278387-1.html?tag=cnetfd.sd (accessed July 21, 2009) 27 Source: MSCI The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form, and may not be used to create any financial instruments or products or any indices The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information MSCI, each of its affiliates, and each other person involved in or related to compiling, computing, or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability, and fitness for a particular purpose) with respect to this information Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits), or any other damages; Thomson Reuters, as of 3/31/2000 and 3/31/2003 CHAPTER 3: TECHNOLOGY SECTOR DRIVERS DatacenterDynamics, “Global Vertical Market IT Spending Remains Stable,” (February 23, 2009), http://www.datacenterdynamics.com/ME2/dirmod.asp?sid=&nm=&type= news&mod=News&mid=9A02E3B96F2A415ABC72CB5F516B4C10&tier=3&nid= 9510AC6198BA4EE79AF7AD65DBF5A4CD (accessed July 22, 2009) Thomson Reuters Eric Mah, “Hard-Disk Drive Market Rebounds in 2H07, Says iSuppli,” Digitimes (November 9, 2007), http://www.digitimes.com/NewsShow/NewsSearch.asp?DocI D=00000000000000000000000000008341&query=HDD+ASP (accessed July 22, 2009) Bloomberg Finance L.P See note Notes 197 Barry Jaruzelski and Kevin Dehoff, “Beyond Borders: Global Innovation 1000,” strategy+business, Issue 53 (Winter 2008), http://www.strategy-business.com/press/ 16635507/08405 (accessed July 22, 2009) World Trade Organization, “Information Technology Agreement—Introduction,” http://www.wto.org/english/tratop_E/inftec_e/itaintro_e.htm (accessed July 22, 2009) Ibid Thomson Reuters, quarterly year-over-year price return data 10 Source: MSCI The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form, and may not be used to create any financial instruments or products or any indices The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information MSCI, each of its affiliates, and each other person involved in or related to compiling, computing, or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability, and fitness for a particular purpose) with respect to this information Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits), or any other damages 11 Thomson Reuters, Total Return for S&P COMP CHAPTER 4: TECHNOLOGY SECTOR BREAKDOWN Source: MSCI The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form, and may not be used to create any financial instruments or products or any indices The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information MSCI, each of its affiliates, and each other person involved in or related to compiling, computing, or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability, and fitness for a particular purpose) with respect to this information Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits), or any other damages Ibid Ibid Ibid Ibid Ibid Ibid Thomson Reuters, MSCI, Inc as of 12/31/08; MSCI The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form, and may not be used to create any financial instruments or products or any indices The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information MSCI, each of its affiliates, and each other person involved in or related to compiling, computing, or creating any 198 10 11 12 13 14 15 16 17 18 19 20 21 Notes MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability, and fitness for a particular purpose) with respect to this information Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits), or any other damages See note Ibid See note See note Ibid Ibid Ibid Ibid See note See note See note See note See note CHAPTER 5: CHALLENGES IN THE INFORMATION TECHNOLOGY SECTOR IDC, “PC Shipments to Drop 4.5% in 2009, According to IDC,” (March 5, 2009), http://www.idc.com/getdoc.jsp?containerId=prUS21725509 (accessed July 21, 2009); “PC Market Continues to Resist Economic Pressures With a Boost From Low Cost Portable PCS, According to IDC,” (September 10, 2008), http://www.idc.com/ getdoc.jsp?containerId=prUS21420408 (accessed July 21, 2009) SEC, “Apple 1999 10-K,” http://www.sec.gov/Archives/edgar/data/320193/000091205799-010244.txt, page 10 (accessed July 21, 2009) Apple, “Apple Sells One Millionth iPhone,” (September 10, 2007), http://www.apple com/pr/library/2007/09/10iphone.html (accessed July 21, 2009) Chris Kanaracus, “IDC: Oracle Maintains Lead in Database Market, PC World,” PCWorld (June 27, 2008), http://www.pcworld.com/businesscenter/article/147684/idc_ oracle_maintains_lead_in_database_market.html (accessed July 21, 2009) SEC, “Oracle 1996 10-K,” http://www.sec.gov/Archives/edgar/data/777676/000095010996-004650.txt (accessed July 22, 2009) Bloomberg Finance L.P SEC, “Oracle Corporation Annual Filing Form 10-K,” (2008), http://www.sec.gov/ Archives/edgar/data/1341439/000095013408012257/f41477e10vk.htm (accessed July 22, 2009) Ibid See note 10 Ibid 11 Thomson Reuters 12 IBM, “History of IBM,” (1990s), http://www-03.ibm.com/ibm/history/history/decade_ 1990.html (accessed July 22, 2009) Notes 199 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Louis V Gerstner, “Who Says Elephants Can’t Dance?” (Harper Paperbacks, 2002) See note See note 12 See note 13 See note Ibid Ibid Ibid See note 11 Ibid See note Ibid Ibid Bloomberg News, “Software Piracy Cost $53b, Study Says,” (May 13, 2009), http:// www.boston.com/business/technology/articles/2009/05/13/software_piracy_cost_53b_ study_says/ (accessed July 22, 2009) 27 Ibid CHAPTER 6: A DEEPER LOOK AT CURRENT & EMERGING TECHNOLOGIES CRC Handbook of Chemistry and Physics and the American Chemical Society, “Silicon,” http://periodic.lanl.gov/elements/14.html (accessed July 29, 2009) SEMI, “SEMI Announces Mid-Year Consensus Forecast for Chip Equipment Industry” (July 14, 2008), http://www.semi.org/en/Press/P044189 (accessed July 29, 2009) Ibid Aaron Hand, “High-Index Lenses Push Immersion Beyond 32 nm,” Semiconductor International (4/1/2006), http://www.semiconductor.net/article/207786-High_Index_ Lenses_Push_Immersion_Beyond_32_nm.php (accessed July 29, 2009) Mark LaPedus, “EUV Woes Fuel Double-Patterning Race,” EE Times (07/18/2008), http://www.eetimes.com/conf/sw/showArticle.jhtml?articleID=209101258 (accessed July 29, 2009) Aaron Hand, “Double Patterning Battles Cost, Complexity,” Semiconductor International (7/17/2008), http://www.semiconductor.net/article/203668-Double_Patterning_Battles_ Cost_Complexity.php (July 29, 2009) Intel, “Intel’s Transistor Technology Breakthrough Represents Biggest Change to Computer Chips In 40 Years” (1/27/07), http://www.intel.com/pressroom/archive/ releases/20070128comp.htm (accessed July 29, 2009) Intel, “High-k and Metal Gate Research,” http://www.intel.com/technology/silicon/ high-k.htm (accessed July 29, 2009) Manek Dubash, “Moore’s Law Is Dead, Says Gordon Moore,” Techworld (April 13, 2005), http://www.techworld.com/opsys/news/index.cfm?newsid=3477 (accessed July 29, 2009) 10 US Environmental Protection Agency, “Nanotechnology: Basic Information,” National Center for Environmental Research, http://www.epa.gov/ncer/nano/questions/index.html (accessed July 29, 2009) 200 Notes 11 See note 12 eWEEK, “What Is the Difference Between Data Deduplication, File Deduplication, and Data Compression?” (08/15/2007), http://www.eweek.com/c/a/Database/What-Is-theDifference-Between-Data-Deduplication-File-Deduplication-and-Data-Compression/ (accessed July 29, 2009) CHAPTER 7: THE TOP-DOWN METHOD Matthew Kalman, “Einstein Letters Reveal a Turmoil Beyond Science,” Boston Globe (July 11, 2006), http://www.boston.com/news/world/middleeast/articles/2006/07/11/ einstein_letters_reveal_a_turmoil_beyond_science/ (accessed May 9, 2008) Michael Michalko, “Combinatory Play,” Creative Thinking, http://www.creativethinking.net/DT10_CombinatoryPlay.htm?Entry=Good (accessed May 9, 2008) Gary P Brinson, Brian D Singer, and Gilbert L Beebower, “Determinants of Portfolio Performance II: An Update,” The Financial Analysts Journal 47 (1991 [3]): 40–48 Source: MSCI The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages Ibid Ibid Ibid Ibid Ibid CHAPTER 9: UPGRADING YOUR PORTFOLIO: INVESTING STRATEGIES National Venture Capital Association, “Venture Capital 101: What Is Venture Capital?” http://www.nvca.org/index.php?option=com_docman &task=doc_download&gid= 357&Itemid=93 (accessed July 22, 2009) Reuters, “Global Economic Crisis Weighs Heavily on Venture-Backed Exits in 2008,” (January 2, 2009), http://www.nvca.org/index.php?option=com_docman&task=doc_ download&gid=381&Itemid=317 (accessed July 22, 2009) About the Authors Brendan Erne is a global Technology sector equity research analyst at Fisher Investments He is also a contributing columnist for MarketMinder.com Brendan received a BA in Finance from Washington State University Prior to joining Fisher Investments, Brendan worked as a financial advisor for Ameriprise Financial in Bellevue, Washington Originally from Redmond, Washington, he currently resides in San Francisco Andrew S Teufel (San Francisco, California) has been with Fisher Investments since 1995 where he currently serves as a Co-President and Director of Research Prior to joining Fisher, he worked at Bear Stearns as a Corporate Finance Analyst in its Global Technology Group Andrew also instructs at many seminar and educational workshops throughout the US and UK and has lectured at the Haas School of Business at UC Berkeley He is also the Editor-in-Chief of MarketMinder.com Andrew is a graduate of UC Berkeley 201 Index 10-K, 162 20-F, 162 Acer: Gateway, purchase of, 101, 105 mergers and acquisitions, 105 Packard Bell, purchase of, 101, 105 Activision-Blizzard, 77 Advanced Micro Devices, 29 Advanced Research Projects Agency, 37 ARPANET, 38 Akers, John, 107 Amazon, 95 Ameritech, 39 Analog signals, 10, 187 Antennas, 18 Apple, 13 communications equipment, 83, 85 development of PCs, 32, 33 iMac, 102 innovation and, 101–103 intellectual property and, 114 iPhone, 5, 37, 85, 103, 114 iPod, 103 iTunes, 22 Mac OS, 35 OEM and computer hardware, 80 Application software, 22, 76–77 Application specific standard products (ASSP), 10, 187 Arthur, Brian, Asia, semiconductor production, 12, 29–30 ASML Holdings, 123 Assembly, 121, 188 Asset allocation, 138 ASUSTeK Computer Incorporated, 13 AT&T, 18, 26–27, 39 Atari, 32 Automatic Data Processing, 94 Balance sheet, 170 Bardeen, John, 27 Base transceiver stations, 18 Batteries See Capacitors Bell Labs, 27, 36 Benchmarks: defined, 71 differences in, 71–73 managing against a technology, 149–153 top-down investment method and, 138–141 Berners-Lee, Tim, 38 Best Buy, 82, 84–85 Beta, 62–64 Blade servers, 13–15 Bookings, 170 Book-to-bill ratio, 46, 47, 88–89, 113 Branding, 172 Brattain, Walter, 27 Bureau of Economic Analysis (BEA), 45, 48 Business to business (B2B), 40 Business models, 106–109 Business process outsourcing software, 23 Business segments, 158 Business strategy, 167 Canon, 123 Capacitors, Capacity utilization, 88–89 Capital gains, 58 Cathode ray tube televisions (CRTs), 20 Cell phones: development of communications, 36 202 Index hardware, 19 microprocessors, 11 NAND, 11 semiconductors and, 10 smartphones, 37 Cell sites, 18, 19 Cerf, Vint, 38 China: piracy in, 114 See also Asia Chips, 188 system on a, 193 See also specific types Circuit-based switching, 16 Cisco Systems, 17, 39, 83 Client relationship management (CRM) application software, 22 Cloning, 33–34 Cloud computing, 127–128 Code division multiple access (CDMA), 17–18, 83, 188 Combinatory play, 136 Commercialization, 38–39 Commodore, 32 Communications, history of, 35–37 Communications equipment: cheat sheet, 181 GICS structure, 70 sub-industries, 83–86 hardware, 16–19 securities analysis, 167–169 Company description, 158 Competition: intellectual property and, 114–115 IT services industry, 171 securities analysis, 158, 159–160 Compression, storage technologies and, 126 Computers: components, GICS structure, 70 hardware, 12–16, 19–2080 history of, 31–35 personal, 12–13 Computers and peripherals: cheat sheet, 181 computer hardware, 13 GICS structure, 70 sub-industries, 79–83 securities analysis, 166–167 Computer technology: enterprise storage technology, 125–127 solid state drives, 124–125 203 Concentration of industries, 74–75 Consulting software, 23 Consumer discretionary sector, 19–20 Consumer to consumer (C2C), 40 Contrarians, 146 Converters, 10 Cooper, Martin, 36 Core PPI Finished Goods Index, 52 Corporate history, 158, 171 Customer mix, 167–168, 173 Customer relationship management (CRM), 76 Data centers, 15 Data domain, 127 Deduplication, file and data, 126–127 Defense: semiconductors and, 28 technology and, 3–4, 37–38 Defense Advanced Research Projects Agency (DARPA), 37–38 Deflation, 52 Dell, 5, 13 development of computers, 34 direct sales force, 81 new business models, 108 OEM and computer hardware, 80 restructuring/cost cutting, 109 Deposition, metallization/dielectric, 121 Desktop computers See Computers Dielectrics, 123–124 Digital hubs, 103 Digital signals, 10–11 Diodes, 4, 189 Direct-attached storage (DAS), 126 Direct sales force, 81 Discrete components, 8, 9, 189–190 Disinflation, 51–52 Distribution, 81–82, 167, 173 Doping/diffusion, 120, 121, 190 Dot-com Era, 39, 41 Drivers: communication equipment, 85–86 computers and peripherals, 82–83 internet software and services, 95 IT services, 94 office electronics, 96 semiconductors and, 89–90 software and, 78–79, 95 See also specific type Dynamic random access memory (DRAM), 11, 110–111, 125, 183, 190 204 Index DynaTAC mobile phone, 36 Dystopia, technology and visions of, 3–4 Economic drivers, 43–44, 142–144 component shipments, 50–51 consumer spending, 49–50 economic growth, 45–48 exchange rates, 56–57 fixed investment, 48–49 inflation, 51–53 innovation and upgrade cycles, 54–56 share supply, 53–54 Economy: New Economy, xi, of sale, 169 as technology, EeePC, 13 Einstein, Albert, 134–136 Elasticity, x Electronic Arts, 77 Electronic equipment, instruments, and components: cheat sheet, 182 GICS structure, 70 sub-industries, 90–92 security analysis, 172–173 E-mail, development of, 38 EMC, 80, 81, 108 Emerging Markets, 94 End-market: applications hardware, 12–20 software, 20–23 breakdown electronic equipment and instruments industry, 172 semiconductors/semiconductors equipment industry, 169 Energy, data center requirements, 15 Enhanced stock selection, 137 ENIAC, 29, 31 Enterprise level storage devices, 15–16 Enterprise resource planning (ERP) software, 22 Ericsson, 83 Etching, 120, 121, 190 Europe, Australasia, Far East (EAFE) index, 71 European Organization for Nuclear Research (CERN), 38 Excel, 22 Exchange traded fund (ETF), 149 Expectations, consensus, 163–165 Extreme ultraviolet (EUV) technology, 123, 190 Fab/fabless, 87, 190 Fabrication plants, 87–88 Fairchild Semiconductor, 27, 29 Faraday, Michael, 26 FASB Rule 123R, 59 Fibre Channel over Ethernet (FCoE), 126 Financial Times, 146 Fixed-line infrastructure, 16–17 Flux, technology in, Foreign income treatment, 58 Foundries, 88, 190 Fourth-generation (4G) technology, development of, 85 Gateway, 101, 105 Geographic breakdown: communications equipment industry, 168 computers and peripherals industry, 167 internet software and services industry, 172 IT services industry, 171 software industry, 166 Germany, 145 Gerstner, Louis V., Jr., 107–109 Global Industry Classification Standard (GICS), 69–71 Globalization, investing and, xii Global System for Mobile (GSM) communications, 17–18, 83 Google, 15, 22, 95, 114 Government consumption expenditures, 45 Graphic design, workstations and, 13 Graphic user interface (GUI), 34 Gross domestic product (GDP), 6, 45, 48 Gross private domestic investment, 45 Hafnium 124 Hard disk drive (HDD), 13, 15–16, 81, 125 Hearing aids, 27 Heidegger, Martin, Hewlett-Packard, 13 Compaq, purchase of, 101 development of computers, 34 OEMs and computer hardware, 80 peripheral sales, 13 restructuring/cost cutting, 109 High-k See Dielectrics Hitachi, 91, 92 Home entertainment software, 77 Hon Hai Precision Industry, 92 Hubs, 17 Hurd, Mark, 109 Index Hybrids, Hydroelectric power, 15 IBM, 29, 32, 38 IT services, 94 new business models, 107–109 OEMs and computer hardware, 80 software and development of computers, 35 Immersion technology, 122–123 Industrial Revolution, 25 Industry overview, 157 Industry weights, 73–74 industry level, 180 sector level, 176–177 Information Age, 25 Information Technology Agreement (ITA), 61 Ingots, 119 Initial public offerings (IPOs), 40, 53 Innovation: communications equipment industry, 168 maintaining or increasing growth through, 101–104 semiconductors and semiconductors equipment industry, 170 Installations, 21, 173 Insulators, 123 Integrated circuits (ICs), 8, 9–10, 27–28, 190 Integrated device manufacturers (IDMs), 88 Intel, 28 Pentium, 4004, 29 computer and peripherals, 82 sale to IBM, 29 Intellectual property, threats to, 113–115 Interface messaging processors (IMPs), 38 Internet service providers (ISPs), 40 Internet software and services, 22 cheat sheet, 182 development of, 37–42, 38 GICS structure, 71 sub-industries, 95–96 security analysis, 171–172 fixed-line infrastructure and, 16 Inventories, 168 Investing, as a science, 133–136 Investment strategies: adding value industry level, 178–183 sector level, 176–177 security level, 183–184 in a technology sector downturn, 184 venture capital, 185–186 205 iPhone See Apple, iPhone IT services: cheat sheet, 182 GICS structure, 71 sub-industries, 93–94 security analysis, 170–171 software, 23 Japan, 29–30, 90, 91, 145 See also Asia Junction transistor, 27 Kahn, Robert, 38 Kilby, Jack, 27 Kyocera, 90 Lehman collapse, 111 Lenovo, 101 LG Electronics, 36, 83 Licensing, 21, 78 Life cycles, analog/digital 10, 11 Linux, 21–22 Liquid crystal display (LCD), 125 cell phones, 19 computers and peripherals operations, 81 economic viability and, PC hardware, 13 televisions, 20 Lithography, 122–123, 191 Logic ICs, 11 Mainframes, 13–14 Manufacturing, 169–170, 173 Margins, gross and operating, 167, 173 Market efficiency, 134 Market share: communications equipment industry, 168 internet software and services industry, 171 semiconductors and semiconductors equipment industry, 169 software industry, 166 Mastercard, 93, 94 Maturity, product, 99–101 fighting, 101–109 MCI, 38 Memory, 10, 11 cell phones, 19 ICs, types of, 11 nonvolatile memory, 11, 192 PC hardware, 13 video game systems, 20 volatile, Mergers and acquisitions, 104–106 206 Index Microcontrollers, 11, 191 Microprocessors, 10, 29, 55, 125, 191 cell phones, 19 computer hardware, 13 computer and peripherals operations, 81 vs microcontrollers, 11 OS software, 21 role of, 34–35 video game systems, 20 Microsoft, 4, 21, 22, 76 computer and peripherals, 82 MS-DOS, 33 Office Suite, 22, 77 piracy, 114 video game systems, 20 virtualization, 128 Vista, 110, 113 XP, 56 Middleware, 22 Minuteman missiles, 28 Moore, Gordon, 28, 124 Moore’s Law, 28, 31, 122 Mosaic, 38–39 Motherboard, 13, 81, 125 Motorola, 29, 36, 103 MP3 players, 11, 128 MSCI World: characteristics, 139, 140, 141 Internet Software & Services Industry, 95 Technology, 41–42, 149–150 top-down investment method and, 149–150 MS-DOS, 35 NAND flash, 11 NASDAQ, 64 Natural phenomena, technology as, NetApp, 80, 81, 127 Netbooks, 13 Net exports, 45 Net neutrality, 60 Network-attached storage (NAS), 126 New Economy See Economy, New Economy News releases See Press releases Newton, Sir Isaac, 135 Nikon, 123 Nintendo, 20, 77 Nokia, 36, 37, 83, 112 Northgate, 32 Notebook computers See Computers Noyce, Robert, 27, 28 Noyce Moore, 28 NSFNET, 38 Obsolescence, product, 99–101 fighting, 101–109 Office electronics: cheat sheet, 183 GICS structure, 71 sub-industries, 96 security analysis, 173–174 Office Max, 82 Operating system (OS), 21–22 Oracle, 76, 77, 104, 128 Original equipment manufacturers (OEMs), 13, 80, 92 Outlook, 22 Pacific Bell, 39 Packet-based switching, 16–17 Passivation, metallization/dielectric, 121 Patterning, 120–121, 123 Paychex, 93 Payment and transaction software, 23 Peer group, 156 Pentium, 55 PeopleSoft, 77, 104 Peripherals See Computers and peripherals Personal digital assistants (PDAs), 37 See also Cell phones Philippines electronics exports, 50–51 Photolithography, 120 Photomasking, 120–121 Photoresist, 121 Piracy, 114 PlayStation 3, 20 Political drivers, 57, 142–145 industrial policy, 61 intellectual property rights, 59–60 taxes, 58–59 trade policy, 60–61 Power amplifiers, 10 PowerPoint, 22 Press releases, 158 Professional market forecasters, 62, 64–66 Property, plant, and equipment (PP&E), 87 Qimonda, 112 Qualitative factor screening, 146–148 Quantum, 127 Random access memory (RAM), 125 RCA, 29 Rectification, 26–27 Recursive technology, 4–5 Regulation, 168, 172 Index Repatriation, 58 Research and development (R&D): Cisco Systems, 39–40 economic viability and, office electronics industry, 174 semiconductors and, 28 software industry, 166 tax credits, 58 Research in Motion (RIM), 37, 83 Restructuring/cost cutting, 109 Retail stores, 81–82 Revenues and earnings breakdown: computers and peripherals industry, 166 IT services industry, 170–171 office electronics industry, 173 software industry, 165 Risks: controlling, 138 stock-specific, 162 systematic, 163 RJR Nabisco, 107 Romanticism, technology and, 3–4 Routers, 17 Russell 2000, 138, 141 Russia, piracy, in, 114 S&P 500 Index, 39, 138, 141 Beta and, 62 EAFE index, 71 sector returns, 63 Samsung Electronics, 36, 83, 111–112 Scalability, 137 Security analysis, 158–159 five-step process, 157 drivers, 157–158 fundamental and stock price performance, 161–162 risks, 162–163 strategic attributes, 159–160 valuations and consensus expectations, 163–165 making selections, 156–157 questions to ask, 165–174 Security software, 22 Semiconductor Industry Association, 89 Semiconductors and semiconductor equipment, 7–8, 45–48, 192 cheat sheet, 181–182 development of, 26–31 end-market applications, 11–20 fluctuations in supply and demand, 110–112 GICS structure, 70 207 sub-industries, 86–90 production process, 118–122 security analysis, 169–170 types of, 8–11 Sensitivity, economic, x, 45 Sentiment drivers, 61–66, 142–146 Server farms See Data centers Servers, 13–15 Shockley, William, 27 Siebel Systems, 104 Silicon, 9, 26–27 dioxide, 123–124 wafers, 118–120, 193 Silicon Valley, 118 Software: cheat sheet, 180 development of computers, 35 GICS structure, 70 sub-industries, 75–79 “on-demand,” 78 operations, 77–78 securities analysis, 165–166 See also Internet services and software Software-as-a-Service (SaaS), 78, 127 Solaris, 21–22 Sony, 20, 36 South Korea, 30 South Sea Bubble, 135 Spectrum, 18 Sprint, 39 Standard products: analog markets, 10 See also Application specific standard products (ASSP) Stocks: picking, xi as technology, top-down investment method, 148–149 Substitution effect, 52 Sun Microsystems, 21–22 Supply and demand: fluctuations in, 110–113 semiconductors and semiconductors equipment industry, 170 System/360, 32 Taiwan, 30 Tax planning, 76 Technology: defined, semiconductors and semiconductors equipment industry, 170 208 Index Telecommunications Industry Association, 15 Televisions, hardware, 20 Testing, semiconductors production process and, 121 Texas Instruments, 27, 29 Thailand, political drivers, 145 Thermal oxidation, 120 Third-generation (3G) technology, 85, 173, 187 Time, 33 Top-down investment method, 136–141, 156 benchmarks, 149–153 rationale, xi steps, 141–149 Traffic Acquisition Costs (TACs), 172 Transmission control protocol/Internet protocol (TCP/IP), 38 Tyco Electronics, 92 Ultraviolet technology See Extreme ultraviolet (EUV) technology Universe, size of the digital, 15 University of Illinois, 38 Unix, 21–22 Upgrade cycles, 34, 166 US Air Force, 28 US Department of Commerce, 45 US Department of Defense, 38 User interface (UI), 21 Video game systems: hardware, 20 See also specific type Virtualization, 128 Visa, 93, 94 VMware, 128 Wall Street Journal, 44, 146 Wal-Mart, 84–85 Watson, Thomas, Jr., 32 Web 2.0, 129 Webvan, 41 Western Digital, 80, 81 Western Union, 94 Wideband Code Division Multiple Access (WCDMA), 17–18 Wi-Fi chips, 20 Wii, 20 Wintel, 82 Wireless infrastructure, 17–19 Wireline See Fixed-line infrastructure Word, 22 Workstations, 13 WorldCom, 39 World Trade Organization (WTO), 59, 61 World Wide Web (WWW) See Internet software and services Xbox 360, 20 Vacuum tubes, 27 Valuations, 163–165 Value-added resellers (VARs), 81 Venture capital (VC), 186–186 Verizon, 18 Yahoo, 22 Zenith, 32 ZEOS, 32 on TECHNOLOGY While the innovative potential of technology is exciting, investing in this sector requires a good dose of discipline Forecasting the ways in which technology transfers into stock price movements can be difficult, but Fisher Investments on Technology can help you gain a better understanding of how this can be accomplished This installment of the Fisher Investments On series is an all-encompassing guide to understanding and analyzing investment opportunities within the global Technology sector With this book as your guide, you’ll quickly become familiar with the global Technology investment universe—from IT services and software to semiconductors and communications equipment—and discover a viable approach for identifying firms in this field with the greatest probability of outperforming Along the way, you’ll also become familiar with the high-level economic, political, and sentiment drivers behind this sector and how accurately identifying them can help determine when to overweight or underweight it You don’t have to be a professional to successfully invest in the global Technology sector—but you need to be prepared Fisher Investments on Technology provides a framework for investing in Technology now and for the rest of your investing career About Fisher Investments Press Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments’ research team, headed by CEO and New York Times bestselling author Ken Fisher, to all investors The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals ... Emerging Markets Fisher Investments on Technology Fisher Investments on Technology Fisher Investments with Brendan Erne and Andrew Teufel John Wiley & Sons, Inc Copyright © 2010 by Fisher Investments. .. Hanson Fisher Investments On Series Fisher Investments on Energy Fisher Investments on Materials Fisher Investments on Consumer Staples Fisher Investments on Industrials Fisher Investments on Emerging... www.wiley.com Library of Congress Cataloging-in-Publication Data: Fisher Investments Fisher Investments on technology / Fisher Investments with Brendan Erne and Andrew Teufel p cm.— (Fisher Investments Press)