Air
date: September 26, 2003
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Larry Ellison interview
KAREN GIBBS: Despite this week's drubbing, the Nasdaq is still up nearly 35 percent since the start of the year. Is this for real or just another head fake? We'll ask three keen observers and the oracle of Oracle, Larry Ellison.
Fred Hickey is the outspoken editor of the High-tech Strategist newsletter. He joins us from Manchester, New Hampshire.
Kevin Landis runs the Firsthand Technology funds. Investors in his Silicon Valley funds certainly know firsthand the ups and downs of technology investing.
And David Kirkpatrick, FORTUNE's senior editor covering Internet and technology issues.
But first, Larry Ellison joins us from company headquarters in Redwood City, Calif. Let's talk about what you've said on record, that Silicon Valley, as we know, is dead. What do you mean by that?
LARRY ELLISON: Well, Silicon Valley had this view of themselves or we had this view of ourselves that we'd be forever young. There would always be lots of little startups funded by venture capitalists that would become giant companies. The fact is that the computer industry, like every other industry before it is going to mature and we're going through that maturation process right now.
GIBBS: What do you think the growth and innovation are going to come from?
ELLISON: A lot of people think that all the innovation in our industry come from little tech startups in Silicon Valley. A lot of innovation has come from little tech startups. But the most innovative company in the history of our industry was Watson Jr.'s IBM. Big companies are as capable or even more capable of innovation than small companies.
GIBBS: Let's talk about Oracle in particular now. Some critics are saying that it's a so-so outlook, so-so growth, poor sales, intense price competition and it makes them kind of worried since Oracle is seen as almost a bellwether software industry. How do you respond to that criticism?
ELLISON: Well, during the worst downturn in the history of the tech industry this past three years, our software business has grown and our profitability has grown to record level margins and record level profits. So we have weathered this storm better than virtually all of our competitors, save one, that would be Microsoft, and they're blessed by God with a monopoly.
GIBBS: You do have a running feud with Microsoft, that is founder Bill Gates. What's your opinion of him?
ELLISON: I think Bill is an exceptionally talented, very, very bright and utterly single-minded, indefatigable foe. So Bill focuses 19 hours of every day on how to make Microsoft more competitive and more successful. I've never met anybody so single-minded and so focused. I wish I could be that single-minded and focused, but I'm not.
GIBBS: You're also looking at the applications business with the hostile takeover bid for PeopleSoft. The industry is resistant to the takeover of PeopleSoft. The regulators are looking at it closely to say nothing of PeopleSoft itself, not too happy about that. Is that an admission that maybe Oracle is on the wrong path?
ELLISON: Well, you know, General Electric grows by acquisition. Is that an indication that General Electric's on the wrong path? Lots of companies, General Motors is a company that was built on a series of acquisitions. There's nothing wrong with growing by acquisition as well as growing organically. We have a dual strategy.
As far as the hostile takeover to PeopleSoft, the question is hostile to whom? We've walked up to the PeopleSoft shareholders and say, how would you like to sell your company for $19.50 a share. And right now the government has to give its approval and we think we're going to get that at the end of October, early November and then we think the owners of the company will accept our offer.
GIBBS: If it doesn't succeed, you have someone else in mind or another company in mind?
ELLISON: I think it will succeed. I'm, we're pretty confident that we'll get the ok, both from the European union and from the Justice Department to proceed. And we think we will be successful in acquiring PeopleSoft.
GIBBS: You've also spent a lot of time and energy thinking about life sciences. What do you see in the future there?
ELLISON: Well, I'm often asked in Silicon Valley what's the next big thing. We have our own vernacular here in the Valley. Expressions like you don't get it in the next big thing, and I've been accused of not getting it because I think the next big thing is not in computer science. I think the next big thing is in molecular biology. And we see this new industry really having dramatic impact on all aspects of our lives. It will change the economy here in Silicon Valley and it will change lives all over the world. It will allow us to deal with some of the worst problems in terms of disease, cure a variety of diseases, allow us to live longer and live healthier.
GIBBS: You've been on the cutting edge of all these new trends and themes. Is this going to be your new, newest thing?
ELLISON: Who knows, it might be the perfect thing for my old age. Life after Oracle would be moving from computer science into a second career in molecular biology. Either that or driving sailboats.
GIBBS: I think you'll be successful at both of them. Larry Ellison, thank you very much for joining us. I really appreciate talking with you today.
ELLISON: Thank you very much.
Technology panel
GIBBS: Well, David, What's your take on Oracle and Larry Ellison?
DAVID KIRKPATRICK: Larry Ellison is very a willful person who knows what he knows, and is absolutely convinced that he is right, and that has many, many times put Oracle in an extremely advanced position that's allowed them to win and to dominate the database business, which is a great business. he's in a business that really is mature and he needs to grow the company. I think he's nervous about that, that's why he's trying to buy Peoplesoft, and I think he's nervous if that might not succeed.
GIBBS: Fred, do you think Larry Ellison is a little nervous?
FRED HICKEY: There's no question that he's nervous. The applications business within Oracle has not done well for several years now. The database business is mature, and he's competing on price oftentimes against Microsoft and IBM. So the company is stalled out and he's making an attempt to grab at a company with a very good reputation within the software world. The problem is, is that software acquisitions have had a history of failing. In fact, computer industry acquisitions have a history of failing. So, the prospects aren't particularly good, and it smacks of desperation.
GIBBS: Kevin, what's your take on it?
KEVIN LANDIS: Parsing his opening statement there, he said one thing that I absolutely disagree with, and one thing that I completely agree with. He said, "Silicon Valley is dead. " False. Totally disagree.
The computer industry is maturing -- absolutely that's right, and therefore computer software is maturing, and therefore he is looking at a bigger business with a lower growth rate, and he's trying to figure out how to become the successful, profitable last man standing. So, whether you think it's going to succeed or not, it's probably a move that makes sense given Oracle's situation.
GIBBS: David, I saw you nodding when Kevin said that Silicon Valley is not dead.
KIRKPATRICK: I'm not even sure I buy the notion that the computer industry is mature, because I think saying that disregards how globally the industry is growing at the moment, and I think when someone like Larry says it's just going to be down to a few big companies -- and obviously he's thinking of himself, Microsoft, IBM, Dell, HP -- you know, that doesn't really factor in the explosive growth that we could be seeing in China, in India and elsewhere, and some companies that are already thriving in those places, like Legend in China.
GIBBS: Fred, are we just replaying 1999 all over again? Are we being led to slaughter?
HICKEY: I think we're being led to slaughter again. I think this is a continuation of the bubble years. We never had the excesses correct. We never got down to levels of valuation that we normally do in bear markets. Chairman Greenspan pumped a whole bunch of money into the system and the U.S. government has run up a hundred billion, multi-hundred billion dollar deficits in order to keep the normal, natural forces of the economy and stock market from working. Consequently, what we have is the wildest orgy in tech stock buying that I've seen since the 1999-2000 period.
Normally, in true turns, in new bull markets, you'll have a change in leadership. Right now all we see is the same leadership. They're buying the same stocks that they bought in 2000. They're buying the same Internet companies. They're buying concepts again with no sales and no earnings in often cases. A couple of weeks ago it was nanotech stocks, a lot of stocks that I see going up, multifold, here within days, have no sales, or no earnings in many cases. So, it's a pretty scary time.
GIBBS: Well, Fred, what should they be buying then?
HICKEY: Well, with valuations as high as they are, they shouldn't be buying technology stocks. So, I'm in a protective mode. Most of my money is elsewhere, not in tech. And I wait for the moment when we're able to buy tech at reasonable valuations.
GIBBS: Well, Kevin, tech stocks are your specialty. What are you buying?
LANDIS: Right. You know, let me just say, I agree with part of what Fred said. I think that you can get led to slaughter if you chase the tape and if you just round-up the usual suspects. You go out and you buy Microsoft, Intel, Cisco, Dell, Oracle, Sun, all the names that you thought you found comfort with. And they look good right now because people are buying those stocks, and that would be the wrong move. What we're trying to do is put our shareholders money to work in companies that are growing, that are making a profit, and that are really off of most people's radar screens.
GIBBS: Such as?
LANDIS: Well, such as in digital photography, we own Lexar Media and Sandisk. These are both removable storage companies, they make flash memory chips and flash memory cards. Now, most people, when they go out to buy a chip stock, or they go buy a memory chip stock, they buy Micron, and it's covered by a list as long as your arm of Wall Street analysts.
Hardly anybody covers these other stocks because they haven't had time to get comfortable with them, and frankly, no one's wanted to do the homework on them until just very, very recently. So, again, you go from one theme to the next, whether it's GPS being designed into your cell phone, or whether it's digital cameras being designed into your cell phone, or whether it's LEDs replacing light bulbs, you're going to find really fascinating, high growth companies that really aren't covered by a lot of the industry, and that's where you have to look. You have to do your homework and dig.
GIBBS: David, talk about for the faint of heart. Let's look at Internet companies, they led us to the slaughter in '99, the dot-coms went dot bust. But if you look at year-to-date, Internet commerce up 100 percent, over the past 52 weeks up almost 160 percent. What's happening?
KIRKPATRICK: Well, I think it's extraordinary to see how quickly these stocks have gone up. On the other hand, it's also extraordinary to see how important they are in our economy, and how rapidly they're changing in their role. Companies like Ebay and Amazon and Google, which of course isn't even public yet, they're changing the way we live on a daily basis in a mass way. It's very easy for me to understand why investors have a hard time valuing these companies.
Now, I was interested in what Fred was saying. I'd be curious to know what he thinks could cause these, this whole bubble, which he seems to see, to burst. I think that, you know, my feeling is the momentum that we're seeing now, because it's still sort of a building phase, is probably going to continue. I have to admit, it's probably not based upon financial analysis, as it really wasn't in the late '90s either, but I think you could see this kind of psychological wave continue for quite a while.
GIBBS: Fred, what do you see? What do you see and what do you look at that tells you that this is not something we should be in?
HICKEY: Well, I think that much of what we've seen is based on hope, once again, of a pickup in the second half of the year. We basically had false rallies and collapses every year since 2000. This is another one. This is a significant rally. However, it's also based, it's still based upon having the economy pick up in a major way, and that consumer spending will continue to grow here into the fourth quarter into next year. I'm concerned that much of the spending that has occurred in July and August was temporary.
I want to make one note. Kevin had mentioned Sandisk. Well, Sandisk has tripled within the last four months. It is not undiscovered. It has $5 billion dollar market cap, and it faces competition for the likes of Samsung, which is directing, directly at their market now. There is very little in the technology world that hasn't been exposed. At this point, it hasn't been taken advantage of, the valuations aren't there any longer.
GIBBS: Kevin, what do you think about that?
LANDIS: Well, first of all, let me say something about Sandisk and Samsung. Sandisk has a supply contract with Samsung and it guarantees Sandisk that they can buy the chips that come out of the Samsung fab(rication facility) at the most favored national pricing. So it's a very good relationship and they don't really compete.
Secondly, it's true, Sandisk has done very well lately as people have started to discover it, and that kind of goes to the observation that you make your best investments when no one else is looking, and you make your best returns when people start to notice it. But for every Sandisk that's an example of what can happen when people catch on, there are several others where people haven't caught on yet.
GIBBS: David Kirkpatrick, Kevin Landis, and Fred, thank you very much for joining us.
Antique and art investing
GEOFF COLVIN: You can value a share of Oracle using profit forecasts and other data, but how about a Cal Ripken autographed baseball, or an autographed photo of Johnny Unitas? Collectibles like these plus art and antiques can be rewarding investments if you know what you're doing. And since the stock and bond markets have both crashed in the past few years, you may want to know more.
Ken Farmer is an auctioneer, an expert on American furniture and art, among other things, and a veteran appraiser on Antiques Roadshow, the hit program here on PBS. I caught up with him at an Antiques Roadshow taping in Oklahoma City and asked him whether art, antiques, and collectibles are really suitable investments for ordinary investors.
KEN FARMER: Compared to everything else, they're probably a good investment, but they're a good long-term investment. I think that people who enjoy this are object people and they buy things because they love them, not necessarily because it's a great investment.
COLVIN: You know, there are studies of how art has done in general over the years as an investment, and essentially it shows it does about as well as stocks. If you compare it with the S&P 500, you'll see a big art market bubble in the late '80s, but then a big stock market bubble in the late '90s, and by now they're looking just about the same. Is that in accord with your experience?
FARMER: Yes. If you talked to all the people in the trade right now, you know with the way the stock market has been and the way people have been with their money in past 12 to 24 months, a lot of retail people have seen a drop in some of their retail activity, but we've almost all, to a man, would say that we have had excellent response on high quality objects that there's no apologies for, that are fresh to the market. There's always going to be plenty of money for those types of objects.
COLVIN: Most people only hear about art sales when they read about a painting selling for 20 or 40 or 50 million dollars, and they get intimidated and think that if you don't have that kind of money, you can't get into this. What's the reasonable advice for people?
FARMER: Well, I think the beauty of the antiques and art business is that it's there for anybody at any level. You do not have to be a millionaire or have six or seven figures to invest.
The best, the best advice I ever heard was that good collections are not built on bargains. And I don't think it matters what level you enter at. You're better off buying one really good object and not buying ten small things that are going to be cluttering up your house.
But by the same token, I think across the board it's more a variable of trying to buy things of quality at any level. For instance, there is a type of pottery that was made in the Midwest called Watt Ware, and when my wife and I first got married, we used to go to yard sales and auctions, and when the price of those pieces of pottery got more than $10, we quit buying it. And some of those pieces are worth $200 or $300 now. Now we didn't buy those because they were going to go up in value. But by the same token, if you buy the right thing before it becomes a fad thing, there's always going to be money in that.
COLVIN: What about educating one's self? A lot of people worry, and they figure they don't know enough about it. Can the average person learn enough to invest wisely in this?
FARMER: I think they can. I think, I think the thing that you need to find is a mentor or a dealer who specialized in what you're interested in. And once you do that, you glean as much knowledge as possible, and you read and you study. And I don't think anything teaches you faster than buying or selling with your own money.
COLVIN: What particular kinds of art or antiques have done especially well lately?
FARMER: Well, I think great American furniture and folk art has done, has held its own in the last 10 years. We've seen a huge increase in interest in mid-19th century antiques, like Gothic type Victorian antiques. The price of Tiffany lamps has probably doubled or tripled in the past 15, 10 or 15 years. So there's a lot of different categories out there that have seen good appreciation.
COLVIN: What hasn't done well? FARMER: The things that I see in my business that haven't done well are things like pocket watches in general. The people who collected those that are aging now are starting to sell them, and a lot of people in the baby boomer group and earlier group, the younger group are looking for, they collect wristwatches now. So the general market for, for instance for pocket watches is off right now.
COLVIN: We've talked about art, antiques, and collectibles as sort of a group, but in fact collectibles are a separate category. Is your advice about them different?
FARMER: I would say if you polled all the appraisers here at Antiques Roadshow, especially the collectibles appraisers, they would all say that collectibles that are related to sports icons and people that are entertainment icons are going to continue to increase in value. I think there's a lot of middle ground in collectibles, that a lot of people get into it for the simple reason that it's financially accessible to them and it's easy to get a group of things. But again, that's like everything else. I think you need to be a little more selective if you get into that part of it.
COLVIN: Let's suppose an investor is willing to take just $2,000 or $3,000 into this market right now. What would you advise them to do?
FARMER: There's a lot of autographs and signed photographs out there right now that are, can be bought for $2,000 or $3,000. By the same token, there's a lot of mid-market Victorian and country furniture that can be bought for $2,000 or $3,000. I think the main thing you need to be concerned about is that you get what you think you're getting when you spend the money.
COLVIN: In other words, that it's authentic.
FARMER: Yeah.
COLVIN: You do a lot of work with paintings and other forms of art, as well as antiques. Now some people say that flat things, in other words, paintings, drawings, prints, lithographs, are a little easier to sell, sometimes a better performing investment than objects, 3-D things. What do you say?
FARMER: As a general rule, I think the reason paintings have such a predictable dollar amount is because they're either signed by an artist or attributed to an artist, and you can buy a painting very much like you buy a car. You either want a Mercedes-Benz or you want an economy car, and you can do the same thing with paintings.
You can buy at any price level, depending on who that artist is. And I think that gives the investor a little more predictability going into it. Like if you see a painting by a particular artist in a certain size, you know that that subject matter is going for, you know, a range of X to X, and that gives you a comfort level when you go out and buy it.
COLVIN: Ken, thank you so much for being with us.
FARMER: Well, listen, I appreciate the opportunity to be with you.
COLVIN: So how about paintings as an investment? When we asked one of America's great authorities on investing, Princeton professor Burton Malkiel, he gave us some emphatic views -- and a fascinating personal story.
(videotape excerpt begins)
BURTON MALKIEL: When I was in graduate school, I essentially had no money. And I decided just on a lark I would write a letter to Miro in Spain, enclosing a small check -- it was $250. And my aunt was a Spanish teacher. She translated the letter into Spanish. And it said, "Look, I've admired you all my life. I just wonder if you would take this check, and maybe if you had a scrap on the floor of the studio that you could send to me, I'd just love to have it. "
And what was wonderful was that he sent me this little watercolor wrapped up in a wrapper that said business papers. I think he was afraid that the customs people might want to see what it was.
This is an original. It's signed by him. And he actually dedicated it to me, affectionately in the back. Once I got a bit of money, I started buying Miro's. They turned out to be a good investment, but not because I ever planned it that way. The lithographs have appreciated 10 or 15 times maybe even 20 times.
There's no question that, in general, art has done reasonably well. The appreciation of old masters, for example, has been about the same as the appreciation in the stock market, so it hasn't been a bad investment.
But I don't recommend it for people for a variety of reasons. First of all, unlike stocks which pay dividends, the dividends that art pays are psychic dividends. You don't get any monetary reward from them. Secondly, the commissions are enormous. So in fact, if you're doing this as an investment, this isn't something you can buy and sell for a nickel a share.
I think you buy something if you love it, and I think, just as I believe you ought to with buying stocks, buy and hold. I think you buy and hold because if you're going to start trading this and you're not in the business, you're never going to make any money that way.
(videotape excerpt ends)
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