Taking Stock: Let's Toast To A Better Year AheadTaking Stock: Let's Toast To A Better Year Ahead

Because the technology markets moved downward in 2002, I wasn't surprised to receive lumps of coal in my stocking this Christmas. However, it's good to remember that the holiday spirit is based on giving and sharing, not receiving, so I'll share what transpired for the information 100 in 2002 and some early indications of what may happen this year.

The information 100 index declined an ugly 42.9% last year. Most of the sectors in the index were way down, with only one sector, peripherals, showing signs of positive returns.

Since I like to consider myself an optimist, I'll start with the positives. Several E-commerce companies showed that they're here to stay. Amazon.com's share price went up 74.6%, making it the best performing stock of the index, while Yahoo declined only 7.8%.

I'd expected security to be a strong IT business in 2002, and I wasn't disappointed. However, there weren't a lot of winners. Instead, many investors got smaller losses. The biggest security winner in the index was Symantec, a leading antivirus and security software vendor, up 22.1%.

You may be surprised to know that there was one other strong performer in the index this year: Hyperion Solutions, a leading provider of analytical applications software for financial reporting, analysis, and modeling. The company's share price was up 29.3% this year, coming in second place on the positive side of the ledger.

Other winners included Intuit (up 9.7%), BMC Software (4.5%), American Power Conversion (4.8%), and Storage Technology (3.6%).

But losers were much more common than winners. Stocks in the-70% to-80% range for the year were common. These weren't fly-by-night companies, either: Brocade was down 87.5%; i2 Technologies,-85.4%; JDS Uniphase,-71.5%. Siebel Systems and Sun Microsystems were down 73.6% and 74.7%, respectively. VeriSign (-78.9%) and Veritas Software (-65.2%) weren't immune, either. Telecom equipment vendors continued to get battered; Nortel Networks was down 78.4%, and Ericsson declined 82.0%.

The worst-hit major sector of the information 100 index was E-business (which includes Ariba, Openwave Systems, and Vignette), one of the first casualties of the slowdown in IT spending. E-businesses as a group were down 63.0%. Coming in a close second were communications infrastructure companies, down 60.2%.

The best sectors were peripherals, up 4.8%, and personal-productivity software, down 5.2%.

Is there much to hope for in 2003? The answer is a modest yes--but not until the second half of the year. The technology market leaders will be at the forefront. In weak markets, they get stronger. These companies are obvious: Cisco Systems, IBM, Intel, Microsoft, Oracle, and SAP, to name a few. If the economy recovers slowly, I also expect niche applications to do reasonably well. These providers will be specialists with a strong product focus, short payback on investment, and easy and fast implementation. They include Cognos (business intelligence), Symantec (security), and Intuit (personal productivity). If a company isn't large or a specialist, it may have some trouble making headway in an equity market that will remain treacherous.

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