Year-end earnings, now in full bloom, show Silicon Valley is leaner, meaner and poised for a comeback.

Biz Ink looked at the recent earnings reports of three of the biggest brand names in technology, as well as how Wall Street analysts reacted, to see if any trends were emerging.

For the most part, analysts praised corporate focus on core product, gains in market share and company readiness to capitalize on an economic turnaround.

Intel chips not down

Santa Clara-based semiconductor giant Intel Corp. (Nasdaq: INTC) said revenue from its fourth quarter, ended Dec. 31, came in at $7.2 billion, a 10 percent increase from the previous quarter. That translated to a profit of 16 cents per share, up 54 percent from the previous quarter, beating most analyst estimates.

Intel said growth in its Xeon family of chips helped its Intel Architecture quarterly revenue rise to $5.9 billion, a 2 percent increase from last year. The company has high hopes for its new Banias and Centrino chips for laptops.

“We believe that Intel’s continual investment in cutting-edge technologies enables the company to maintain its leading position and gain market share,” said David Duley, Wells Fargo Securities analyst, in a Jan. 15 research report.

Duley says Intel could see an uptick this year, beginning in July as Microsoft stops supporting most corporate Windows 9x/NT products, forcing business to buy more powerful machines to take run Windows 2000 or XP.

“We view the potential corporate upgrade for Windows 2000/XP in 2003 as a likely spark,” say Pacific Crest Securities analyst Michael McConnell.

Yahoo surfs past Wall Street

Yahoo Inc. (Nasdaq: YHOO) reported fourth quarter profit of 8 cents per share, up from a loss of 2 cents in the year-ago period. That result was 2 cents higher than the Street’s consensus, according to Thomson Financial/First Call.

The Sunnyvale Web portal reported quarterly revenue of $285.8 million, up 51 percent from 2001. Last year, Yahoo said its revenue suffered because of the Sept. 11, 2001 terrorist attacks.

“Yahoo is the best-performing portal and, as such, is well-poised for upside from an improving ad market,” says Safa Rashtchy, a U.S. Bancorp Piper Jaffray analyst.

Margins for Yahoo improved across the board, reflecting increased leverage, a more favorable revenue mix and well-controlled costs and expenses, according to Standard & Poor’s analyst Scott Kessler.

“Earnings-per-share were higher than we anticipated not only because of operating improvements, but also due to a lower-than-forecasted tax rate and an active stock-repurchase plan,” Kessler said in a Jan. 16 research note.

Also cited as a key factor in Yahoo’s turnaround is the company’s staffing reductions and restructuring during the past two years.

S&P says not to expect much of an increase in Yahoo’s share price since — at more than $18 a share — the stock is already overpriced.

“Although the fourth quarter gave investors reason for encouragement, we nevertheless remain bearish on the near-term prospects for the shares, based largely on their excessive valuation,” Kessler says.

Kessler says Yahoo trades at about 65 times 2003 operating earnings estimates, which exceeds those of its peers. Consequently, Kessler believes Yahoo shares should be trading in the $12 to $14 range.

eBay continues winning streak

San Jose-based eBay Inc. (Nasdaq: EBAY) saw more than $4.6 billion of gross merchandise sales in the three months ended Dec. 31 — that’s about one-third of all online sales for the quarter, according to Nielsen/NetRatings. eBay reported fourth quarter profit of 28 cents a share on revenue of $413.9 million, beating the Street consensus by 4 cents and doubling last year’s result.

“Perhaps even more impressively, the company generated an incremental 6.8 million registered users,” says Bear Stearns analyst Jeffrey Fieler, saying the company performed ahead of his expectations by attracting a total of 61.7 million users as of Dec. 31.

“Building on a strong holiday online retail season that favored bargain-conscious and time-starved consumers, eBay’s operating performance exceeded expectations in virtually every category,” says Christa Sober, an analyst with Thomas Weisel Partners. “The outperformance should assuage doubters’ concerns that the company might not reach its 2005 targets of $3 billion in revenue and over $1 billion in free cash flow.”

Adding it up

As for tech trends so far, judging by Wall Street, successful valley companies paid attention to the bottom line.

Whether launching new services to grow lucrative markets, or cutting back on services, location or staffing in losing ventures, a focus on growing core business profits garnered most analyst praise.


Apple Computer Inc. says reports of its imminent demise are, once again, premature.

With a newly-installed base of
5 million users of its OS X operating system, Apple claims it’s the largest seller of UNIX-based computers worldwide and disputes reports its market share is eroding.

Contrary to Apple’s assertions, a December research report by Al Gillen of IDC of Framingham, Mass., calculates that Linux-based personal computers (a derivative of UNIX) make up 4 percent of the desktop marketplace, passing Apple Macintosh’s 2 percent (25 million users) and landing in second place behind Microsoft Corp.’s Windows.

“If you count the number of desktops out there, any Linux provider would like to get 4 percent of that,” says Joseph Eckert, spokesman for Oakland-based SuSE Inc., the second-largest Linux software company worldwide.

The debate may be simply semantics. Apple touts it’s not a victim of Linux. Rather it expects to convert more Linux users to the Macintosh platform with a new strategy offering programmers free operating-system software critical to creating Linux-based applications used by a wide range of professions.

Brian Kroll, Apple’s senior marketing director for OS X, says “I think [IDC] is confused.” IDC researcher Gillen did not return telephone calls requesting an interview.

Kroll claims 5 million Macintosh users have adopted OS X since last year’s debut, moving Apple ahead of IBM and Santa Clara’s Sun Microsystems Inc. as the largest seller of UNIX-based computers.

The “X” in Apple’s OS X has two meanings. It represents the Roman numeral 10 version number and is programmer shorthand for the UNIX-based operating systems such as Linux and Sun’s Solaris.

Apple executives say their newest operating system attracts people who in the past didn’t look at Macintosh computers. The days of Apple being seen as a company dependent on graphic designers and publishers are no more, Kroll says.

“I think you can say its over — definitely,” he says.

The UNIX technology behind OS X allows the Cupertino company to gain acceptance with professionals in bioinformatics, government, animation and developers of Linux-based scripting applications, he says. In bioinformatics, for example, Apple began making inroads after programmers adjusted the popular UNIX/Linux BLAST program, used in gene sequencing to decipher DNA, to run on OS X.

In the world of computer operating systems, the availability of new and useful applications is the difference between life and death.

Last week Apple began offering a free, open source X11 that’s critical to many Linux users for Mac OS X. Apple’s new X11 is an operating system environment designed to run alongside and integrate with Macintosh OS X operating system.

The availability of X11 on the Macintosh platform will accelerate Linux-to-Mac application conversion and attract new Linux and UNIX-based applications, Kroll believes.

“Suddenly [Linux] applications that were not available before will just show up,” Kroll says. “Our core is open source. This is a huge change from Apple’s previous strategy.”

Linux Journal Senior Editor Doc Searls agrees. In a Jan. 12 report he writes, “while the obvious purpose of the [X11] move is to give Apple parity with other UNIXes, the more important purpose is to allow easier porting of [or UNIX-based] applications to OS X.”

Apple counts on its version of X11 being declared best of breed in the open-source market and attracting programmers — particularly UNIX users who wouldn’t have given a Mac a second glance a few years ago — to drive up computer sales.

With Apple’s two new Powerbook laptop computers offering mobility to
UNIX users, Linux fans may be featured in Apple’s next “Switch” ad campaign.


Humboldt Bancorp is aiming to become a major player in community banking in Northern California beyond its Eureka roots, but don’t expect a face-off with Silicon Valley’s monster banks.

To pay for expansion, the company plans to sell lucrative, non-core businesses. Humboldt says it may be able to grow by opening branches or acquiring other banks.

Humbolt’s strategy is to let the big banks fight over the Bay Area while it focuses on rural areas and second-tier cities. With nearly $1 billion in assets, the company is dwarfed by behemoths such as Bank of America, Wells Fargo and Citibank. It even runs a distant second to larger community banks such as Greater Bay Bancorp of Palo Alto, which boasts assets of nearly $8 billion.

Humboldt CFO Pat Rusnak says Humbolt plans to become a major force in community banking with a footprint that stretches from the Oregon border to Fresno.

“But we have [left] the East Bay and South Bay out of that vision,” he says.

Humboldt, which also operates banks under the names Capitol Valley Bank and Tehama Bank, has a minor Bay Area presence with one Capitol Valley branch in Napa.

Rusnak said Napa is as far south as his bank plans to operate along the Interstate 101 corridor, saying more lucrative territory lies in Central Valley cities such as Stockton, Modesto and Merced.

“We have plenty of opportunity to grow our franchise along Interstate 5 between Sacramento and Fresno,” he says.

Tim Rogers, chief economist with in Chicago, says Humboldt is smart to focus on geographic areas the big banks may view as an afterthought.

“With the banking consolidation, smaller banks can’t compete in the same market with big banks, which dominate with the convenience of location for consumers,” he says.

According to banking industry mergers and acquisitions tracker, Charlottesville, Va.-based SNL Financial, there were 213 banking mergers in 2002 compared with 261 in 2001. The biggest deal was last November’s $5.8 billion merger of Citigroup and Golden State in California.

But Humboldt doesn’t have that amount of cash and may not be able to grow organically in the Bay Area.

“I don’t think they can finance themselves as cheaply as the monster banks,” says’s Rogers.

Humbolt may succeed by looking for openings in all the right places.


As doors opened Monday to MacWorld attendees eager to be wooed by Apple Computer Inc.’s new products, brokerage firm Merrill Lynch recommended investors dump the stock.

Lackluster year-end sales left current Apple models on store shelves while this week new mobile computers were introduced, prompting Merrill Lynch analyst Michael Hillmeyer to post a sell rating — his company’s most negative opinion.

Apple’s “Switch” ad campaign and its costly 50 new retail stores haven’t delivered a significant sales uptick. Apple today claims about 25 million users worldwide — about 2 percent market share — well below its 10 percent share in 1990.

“We believe that Apple’s December quarter sales should be $1.45 billion — $50 million below the Street consensus,” Hillmeyer stated in a research report. “Although Apple makes great products, it’s fighting an uphill battle in a standardizing market.”

Stock analyst Kimberly Alexy of Prudential Securities, who attended MacWorld in San Francisco this week, views it “as a modest disappointment.”

Apple CEO Steve Jobs in his keynote Tuesday claimed 2003 as “The Year of the Notebook,” unveiling svelte 12- and 17-inch PowerBook laptop computers.

The new laptops are priced at $1,799 and $3,299, respectively, but some analysts, even those impressed with the stylish technology, believe the company needs even more lower-priced computers for mass appeal. Apple’s lowest cost hardware products are its $299 iPod, $799 iMac desktop and $999 iBook portable computer.

“While we agree that notebooks will be a significant driver, we maintain that Apple needs to hit the market with lower-priced products to stimulate buying — particularly in a tough consumer-spending environment,” Alexy says.

Apple’s history is a fight against standardization, but that drives up costs and computer prices. The innovative Cupertino company funds major expenses competitors don’t bear — developing its proprietary operating system, configuring hardware to work with Motorola and IBM’s non-standard PowerPC CPU and high-end industrial designs of visually-striking products that competitors rush to copy. Apple’s vanguard approach, such as including 802.11b wireless local area network technology in its computers five years ahead of competitors, gains a very loyal following but not a mass market.

In contrast, Apple’s competitors rely on Microsoft Windows for their operating system and Intel’s or AMD’s CPUs for their hardware — both industry standards. Going it alone, Apple cannot rely on economies of scale or manufacturing efficiencies to differentiate its product line because the company rarely uses off-the-shelf components.

On Tuesday, the day after Merrill Lynch’s sell recommendation, Apple closed at $14.85, down 5 cents.


When Sun Microsystems Inc. won a major battle in its antitrust war with Redmond, Wash.-based Microsoft Corp. Dec. 23, it left many in the valley wondering whether to cheer for the local underdog.

U.S. District Judge J. Frederick Motz’s ruling says Microsoft must start shipping Sun-approved versions of Java in future Windows operating systems.

Santa Clara-based Sun claimed Microsoft had been including older versions or customized versions of Java that didn’t work according to contract requirements between the two companies.

The day after the ruling, Sun’s stock rose about 6 percent to $3.13 a share, where it stayed through the holidays. Microsoft’s shares fell less than 1 percent to $52.82.

“In the final analysis, the public interest in this case rests in assuring that free enterprise be genuinely free, untainted by the effects of antitrust violations,” Motz said, temporarily ordering Microsoft to deliver current versions of Java until a full injunction trial takes place later this month.

“This decision changes the dynamics of the distribution channel for Java technology,” said Mike Morris, Sun’s vice president and special counsel, in a written statement released Dec. 23, during his company’s annual holiday shutdown.

“It’s a victory for the Java community,” Morris said, “including developers, consumers and system vendors.”

Sun has been trying to use its newest Java technology, Java 2 Enterprise Edition (J2EE), to launch a Web services arm called Sun One, which would compete directly with Microsoft’s .Net initiative.

Motz says if Microsoft’s .Net dominates Web services, “it should be because of .Net’s superior qualities, not because Microsoft leveraged its PC monopoly to create market conditions in which it is unfairly advantaged.”

And as Wall Street analysts look at the situation, many think it could be years before a lucrative Java-based market for Sun sees the light of day.

Sun says it’s already making money from Java technology, but recent figures on Java are not available.

However, Richard Gardner, a San Francisco-based analyst with Salomon Smith Barney, says since Java developer tolls only make up about 1.5 percent of Sun’s revenue, which he estimates at $12.1 billion dollars for the fiscal year ending in June, it is too early to justify any material impact to revenue or earnings.

“Although it is not possible at this time to estimate any near-term financial advantages to Sun,” says Jay Stevens, analyst with New York-based Buckingham Research. “Sun needs a business model that enables the company to develop a comfortable profit stream from the Java line.”

But he says the long-term impact of this case is huge.

“In the world of standards, Microsoft — a proven monopolist — has proprietary control over the Windows environment,” Stevens says. “The future of the computer, communications, video, game and photo industries is at stake. Current legal decisions will determine the shape of these industries in 2010.”

Stevens says Motz’s ruling attempts to level the playing field between Microsoft and Sun as the case drags on through the courts — which could take a year or more.

Stevens says one of Sun’s largest partners on Java for enterprise is New York-based IBM, which is pairing Java with its popular Linux-based offerings.

“We view Java and Linux as technologies that provide alternatives to Microsoft products,” Stevens says.

But Microsoft has appealed Motz’s ruling.

“The implementation of [Motz’s] ruling may be delayed if Microsoft is successful in getting a stay order,” says Salomon’s Gardner. “This ruling could be overturned in the permanent injunction ruling.”

In the meantime, software writers — who may have felt forced into supporting Microsoft’s .Net technology — can now use Java freely thanks to Motz’s ruling.

New York-based Goldman Sachs analyst Laura Conigliaro believes this is the case.

“Developers will now feel more comfortable writing applications to the Java platform,” she says, pointing out the ruling does not affect Goldman Sachs’ outlook for Sun.

“While we expect Sun to gradually recover when IT spending picks up,” she says, “the company remains in a relatively weak competitive position given the shift toward lower-cost platforms and we believe Sun must make substantial changes to win back customers that have switched off of its systems.”

Conigliaro says if Sun is ultimately successful in the courts and Microsoft is forced in a “must carry” rule to include Java in Windows, other companies will benefit.

“IBM and others, including BEA [Systems Inc.] and Oracle [Corp.] have built profitable business models around Java with their middleware products,” Conigliaro says. Given the strength of IBM’s middleware and its involvement with Java, IBM may well end up prospering at least as much as Sun from this sort of ruling.”

But one prominent analyst says Sun’s recent courtroom win may be disguising the company’s primary hurdle.

“Nevertheless, [the legal victory] is still overshadowed by the concerns we have over the profit and market share compression Sun is facing in its core hardware business,” says Bill Shope, equity research analyst with J.P. Morgan Securities Inc. in New York.


The long-awaited redevelopment of the Sunnyvale mall has been languishing in limbo for years, its owner recently filed bankruptcy and retailers are fleeing one of Silicon Valley’s whitest elephants.

“It’s not a normal year,” says Connie Verseles, manager of retail and hospitality at Sunnyvale’s Department of Community Development. “The mall’s vacancy rate is between 60 and 70 percent.”

In 1999, Sherman Oaks-based American Mall Properties LLC bought the aging Sunnyvale Town Center Mall and renamed it Silicon Valley WAVE (Walk and Village Entertainment). AMP worked with the city on a plan for a $100 million makeover to convert the indoor eyesore into an open-air center tied into the city’s popular Murphy Street historic district.

But the dot-com bust and tech recession have hit Sunnyvale hard and those plans were put on hold in August after San Diego National Bank moved to foreclose on the mall after it failed to make mortgage payments.

AMP filed for Chapter 11 bankruptcy protection in September, hoping to stave off lien holders and keep control of the mall.

“The [redevelopment] plan is still going forward,” Verseles says. Although it is being held up because of bankruptcy issues, the city has not changed its commitment to revitalize the area, she says.

Sunnyvale already has committed $2.5 million in municipal bonds to help build new parking garages for the mall.

Compounding the problem, an increasing number of shops are not renewing their leases. In 1999, when AMP bought the mall, it was 100 percent leased; now it’s down to 30 to 40 percent occupied.

Soon, Target and Macy’s will be the only anchor department stores as the mall loses J.C. Penney, which has prominent signs telling shoppers of its store closing sale.

J.C. Penney plans to close the store by the end of the month and sell the building by year end.

Rumors are that Wisconsin-based Kohl’s Department Stores is in talks with J.C. Penney to buy the Sunnyvale building as part of a Bay Area expansion.

A Kohl’s representative says her company is not ready to announce their plans for the Bay Area.

Mall management says the rules imposed by the court are keeping some new retailers, who want into the mall, away.

“The bankruptcy court does not allow us to enter into long-term five-year leases,” says Kenneth McGee, the mall’s general manager.

Many big-name retailers demand the stability guaranteed by leases of at least five years to offset moving and renovation costs.

In addition to J.C. Penney, two smaller retailers, the San Francisco Music Box Co. and mom-and-pop clothing retailer Little Angel, also are shutting their Sunnyvale doors. Neither company would comment.

Some nearby merchants, who did not wish to be quoted, say the bad reputation of a failing mall is keeping customers away.

Mall management disagrees.

“Our very unsophisticated manual count shows [car] lots were full and traffic was up,” McGee says.

He says the WAVE’s Chapter 11 reorganization could be complete by the end of March and then the mall is back in business and the redevelopment and remodeling plans will be in full swing again.

A landlord in bankruptcy is a
risk some small-business owners aren’t willing to take.

“Many small merchants are not renewing leases because of uncertainty,” Sunnyvale’s Verseles says. “Some of the mall tenants call [the city] to see what we can do for them.”

But the city’s hands also are tied up in bankruptcy court proceedings.

And that didn’t help local shoppers this holiday season.

“Where are all the stores?” asks Sunnyvale resident Joi Tzeng, pointing to a row of empty storefronts along the mall’s southern side. She took a 30-minute bus trip to the mall for holiday shopping.

Fellow Sunnyvale resident Tracey Tibbetts was dismayed by the emptiness of the shopping mall.

“It looks like a slum,” she says. “It looks really nasty; it’s going downhill rapidly.”

Tibbetts has been following Sunnyvale’s mall redevelopment since she moved within walking distance of it three years ago.

“I know we’re in a slump right now and in five or 10 years Sunnyvale’s downtown should be hopping with new business and people,” she says. “They need to get this bankruptcy thing resolved as soon as possible.”


“If this gets any more popular, I may have to take out a loan to cover expansion costs,” says Lynn Schneider — not exactly words you’d expect from a businesswoman burned by the tech recession.

A unique combination of life experiences has one of Belmont’s newest entrepreneurs dusting herself off and starting her own online business,, selling a product for those who wear braces.

It started last December when Schneider decided to get braces for a crooked smile that has bothered her since childhood.

But, as a woman in her 40s, she feared lack of social acceptance as an adult with braces — something most people associate with adolescence.

“I wanted to connect with other adults who were going through the dilemma of braces,” she says. “I felt like an idiot walking up to teenagers to talk about what braces are like.”

According to the American Dental Association, only 15 percent of orthodontic patients are adults even though malocclusion or a “bad bite” may be more common among the over-18 set.

So, to find other adults with braces, Schneider turned to the Internet. “Some people pick up the phone book,” Schneider says, “I go to Google.”

What she found disappointed her. “Almost all the Web sites were for kids,” Schneider says, explaining why she started her own Web site, ArchWired at

On her site’s “Metal Mouth Forum,” adults from around the globe share product tips.

During this process, some forum members — including Schneider — developed travel kits for quick teeth cleaning on the run.

The Web site even made local news earlier this year, after actor Tom Cruise got braces to improve his already-multi-million dollar smile.

But, while her online hobby and Web site were taking flight, Schneider’s home finances were falling victim to the anemic economy.

“Projects used to fall into my lap,” she says, explaining how her 15-year old technical writing career died down this year.

“I was making nearly $100 an hour as a contract technical writer,” she said, explaining experience can’t compete with fresh college graduates who will settle for a fraction of that amount.

Her husband’s business also took a hit from lack of venture capital and like most investors during the dot-com boom years, their investments dwindled.

Then the innovation light bulb went off.

“One time I was in a restaurant’s public bathroom, and I was cleaning my teeth,” says Schneider, who was using her homemade kit. “And someone else who had braces asked me where I got my orthodontic hygiene kit.”

Schneider searched for a ready-made kit when she got her braces, but came up empty. So she developed her own with special dental picks and cleaners, collapsible mirror and cup, as well as toothbrush and toothpaste all in a compact carrying case.

After doing some wholesale pricing research and reviewing the numbers with her husband, a former software entrepreneur who she affectionately calls “Mr. Spreadsheet,” the couple decided to go for it. They made up a trial run of 300 kits, and will turn a profit if they sell the inventory at $25 each.

On $4,000 raised from credit cards and by selling unused computer equipment on eBay, was funded in November and has been catering to orthodontists.

“No, I’ve never seen anything quite like this before,” Dr. Adrian Vogt, a San Mateo orthodontist says. “Some companies package things together, such as an emergency kit, but nothing for day-to-day use.”

In addition to professional orders, Individuals are buying, too.

“It’s very convenient,” says customer Ruthie Biermann, a baby boomer from Edison, N.J. “The kit is very small and looks like it could hold a Palm Pilot — no one has to know what’s in it.”

Biermann says it’s worth the extra expense. “It is impossible to keep a home made kit in a baggy clean.”

“It’s hard enough to keep kids organized, let alone take care of braces,” says Belmont resident Janet Leist, who bought a DentaKit for her 9-year-old daughter. “It is easy for my daughter to pack up and move from bathroom to bathroom.”

“Right now our goal is to make enough money to break even,” Schneider says, laughing, “but if there was enough profit to pay for my braces or beyond — that would be great.”