Technology Confabs Highlight Investment Opportunities
By Cindy Christ

For most of us, February calls up images of Valentine's Day and the end of football.

But for technology businesses, February begins an annual parade of conferences, where leading companies play show and tell for brokerage analysts in hopes of stirring up fresh "buy" recommendations, or at the least, enough interest to attract new coverage.

Results from two meetings hosted last week by top investment houses Banc of America Securities and Goldman Sachs help shed light on this year's promising trends, pointing investors toward the best technology plays.

Based on information gleaned from presentations, surveys and conversations with some of the world's top tech firms, here are two key areas that analysts say investors might target in 2000 and beyond:

Application Service Providers

The emerging Application Service Provider market is likely to revolutionize the way companies use and support their computer and telecommunications systems, said Banc of America analysts at the firm's recent technology conference in San Francisco.

Just as leasing changed the way many Americans acquire cars, the ASP model is reinventing how businesses structure and use technology.

ASPs allow companies to rent software applications like Windows Office on a per seat basis, a system that saves big bucks by decreasing expensive investments in technology and hard-to-find computer support staff.

"Over time, ASPs will be viewed as a kind of utility for information processing, similar to the telephone and cable TV industries," said Banc of America senior analyst Paul Dravis.

Dravis said that the Internet is having a dramatic impact on businesses, and that ASPs are emerging to help companies of all sizes join the revolution in technologies ranging from application software to data transfer and telecommunications.

Rapid adoption of costly and complex Internet-based computer systems, the trend toward outsourcing non-core business functions, and an acute shortage of qualified IT workers are all driving furious growth for ASPs that rent everything from software to network management services.

Dravis predicts that a wide variety of ASP business models will thrive in this environment, including those providing software and file storage, Web hosting services, and co- location data centers.

Opportunity in the worldwide ASP market is phenomenal, according to Dravis. The market has roughly doubled since 1998, and is projected to continue at that pace, growing from $3.5 billion this year to $23 billion by 2003.

Dravis said a variety of firms would benefit from this trend, including Citrix Systems (CTXS), Microsoft (MSFT), Exodus Communications (EXDS) and Inktomi (INKT).

Internet Infrastructure

Goldman Sachs analysts were busy last week presenting results from their Annual Survey of Information Technology Managers at the company's technology symposium in Palm Springs.

Designed to reveal industry trends and needs, the survey polled 100 IT managers from Fortune 1000 companies.

Three-quarters of respondents said that technology spending at their companies would at least equal 1999 levels. Among those, 40 percent said they would increase IT budgets this year, some by as much as 10 percent.

Analysts say three areas will account for the bulk of IT spending in 2000.

"The most frequently cited segments by IT managers for spending increases were enterprise software and hardware and data networks," said Laura Conigliaro, Goldman Sachs senior analyst and managing director.

On the software side, data management and transactional systems were most often cited as areas for increased investment.

"This has to do with infrastructure requirements and Internet build out. We're hearing this from virtually every company at the symposium," Conigliaro said.

The survey also asked managers which technology suppliers they thought were "gaining momentum" from increased technology spending and Internet usage.

Network gear maker Cisco Systems (CSCO) led the pack, followed by Dell Computer (DELL), Microsoft (MSFT), Intel (INTC) and Oracle Corp. (ORCL).