Digital Happenings

by Forest Linton

Net stocks on fire
I covered Internet stocks in detail in last month's column. As a follow up, I would like to highlight some of the occurrences of the past 30 days.

In early April, Yahoo posted a quarterly profit that was twice analysts' estimates. Consequently, the stock rocketed up, taking the other search engine stocks with it. In the days that followed, Excite and Lycos share prices increased by more than 60%, and Infoseek more than doubled in value.

It is clear that Internet stocks are coming into their own, and that Wall Street views them as viable places to put its money. Recently, Merrill Lynch began coverage on all four search engines Ñ which is a statement in and of itself. With market valuations topping $5 billion for Yahoo and over $1 billion each for Excite, Lycos, and Infoseek, search engines are leading the Internet frenzy.

The market run-up has not been limited to search engines; practically the entire Internet category was lifted by widespread investor enthusiasm, with AOL, Amazon, CNET, and CDNow all posting new highs. In last month's column, I remarked that Internet stocks are more volatile than even regular high-tech stocks. The activity in April has certainly proved this. But amidst the strong risers were some companies that weren't so lucky, so please take care and be sure to exercise due diligence before making any investment decision.

Hot stock tip
Inktomi is the latest search engine to file with the SEC (Securities Exchange Commission) to go public. Inktomi is well known for being the engine behind such services as Wired's HotBot, AOL's search engine, and Microsoft's upcoming start page. But it is the company's activities in Japan that have caught my attention, and I believe it is a forward-looking company.

Inktomi licenses its technology to NTT-AD for the NTT Goo search service. Widely considered one of the better search engines in Japan, Inktomi's technological advantage in handling kanji may set it apart from others. In addition, Inktomi is positioning itself not only as a search service but as a search platform for handling such delicate tasks as intelligent caching; the company hopes to develop this as a primary revenue stream. Inktomi plans to offer 2.2 million shares; there will be 20.5 million shares outstanding after the IPO (initial public offering), which would make Inktomi worth about $270 million.

The competition intensifies
In a related bit of news, Lycos (one of the US "big four" search engines) established a Japanese subsidiary in April 1998 (http://www-jp.lycos.com/). In a three way deal that gives Sumitomo Corporation 50% and Internet service provider IIJ 10% ownership, Lycos is now ready to compete in Japan against its fellow US search engines who all have Japanese operations up and running.

In addition, there are several domestic search engines that are quite strong, such as NTT's Goo and Directory, Fujitsu's Info Navigator, Hitachi's Hole-in-One, and Recruit's Acara Navi. Japan is one of the largest search engine markets, and Yahoo Japan's arguable success here has provided inspiration for many companies to join the fray. Over the next few quarters, look for a gradual shakeout in the search engine category; some may merge, be bought out, or simply discontinue services.

Apple on a streak
Despite all his faults and critics, it certainly seems that Steve Jobs is doing some things right. He has gotten Apple back on track, and attracted the attention of the markets once again. In mid-April, Apple announced its 2nd-quarter results, which came in much higher than had been predicted. Apple reported profits of $47 million on revenues of $1.6 billion; $191 million of this was in Japan, which represents almost 12% of Apple's worldwide revenues.

Apple Japan has been quite busy. It released Mac OS8.1 at Tokyo's MacWorld Conference in February, and is reporting brisk sales of both that and its G3 computers in Japan. Apple Japan has also released an update to its 2400 subnotebook. The new machine, co-designed with IBM Japan, features a 240-MHz 603e processor, 16MB of RAM, and a 2GB hard disk as standard. Due to a projected limited overseas demand, the 2400/240 will only be available in Japan, Apple says. (The 2400/180 was sold both in the US and Japan.) Based on this and other news, Apple's stock has enjoyed strong support and has more than doubled in value in the past four months.

Apple has gotten Wall Street's attention. Let's see if the company can keep it.

Win98J coming in July
Microsoft Japan recently announced that the Japanese version of Windows 98 will be released about 30 days after the US version. Currently, the US version is scheduled to launch on June 25, which puts the likely Japanese release in late July. Windows 98 is being positioned as the "perfect tune-up" to Win95, and it includes many performance- and stability-enhancing improvements.

Forest Linton is IE Group Product Manager for Microsoft Japan. He can be reached at forest@gol.com.

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