Bright Future Forecast for 'Disruptive Technologies'.

LAST week was another bleak one for the local Internet economy, but the bigger picture for technology stocks looks astonishingly bright, according to financier Michael Milken and Amerindo Investment Advisors Chief Investment Officer Matthew Fitzmaurice, who spoke together at the Milken Institute in Santa Monica last week.

"This was not a flash in the pan," Fitzmaurice said, referring to the tech boom of the late 1990s. "Massive, sustainable businesses have and will continue to be created as a result."

But several local startups apparently didn't have the balance sheets to make it through these more rational times. Last week, The Dock Exchange Inc., an online marketplace for the industrial equipment industry, shut down. So did Marina del Rey-based WhatsHotNow.com Inc., an e-commerce service provider for the licensed merchandise industry.

Other fledgling Internet companies appear to be struggling to make ends meet. Hiwire Inc., an L.A.-based provider of advertising services for streaming media content providers, laid off 17 employees, or about one-third of its staff.

AtomShockwave - the online film, animadon and gaming company - is shutting down its L.A. office along with others as part of a "restructuring" that will knock out 70 percent of its staff.

In another sign of gloomy times, the Internet Content West conference - an event that in past years attendees had to fight to get into - drew a tiny audience to the Century Plaza Hotel. Even a roster of speakers that included digital mavens from MTV, Sony Corp. and AOL Time Warner couldn't draw a crowd to hear about the dreaded word (content).

But the end is not near.

Milken and Fitzmaurice are still pumped up for what they call "disruptive technologies," or technologies that fundamentally change the way we work and live.

Fitzmaurice made a compelling analogy between the 1980s PC era and today's evolving tech economy. The 1980s, be said, began with tech hype for the PC, which Time magazine then deemed its "Man of the Year," just like the late 1990s saw Internet hype and Amazon.com CEO Jeff Bezos become Time's "Man of the Year." PC stocks then plummeted between 1982 and 1984 and were maligned, just as Internet stocks did this year. and late last year. But 1986 marked the best year ever for tech IPOs, with companies like Microsoft Corp., Oracle Corp. and EMC Corp. coming through the door with a bang. Will 2002 and beyond hold as much promise for tech?

"We ain't seen nothin' yet," Fitzmaurice said.

While rationality has returned, tech has and will continue to fundamentally change the way business is done, he said.

Even B2C, which has already been eulogized by most pundits, should not be written off.

"At a minimum, there are five significant global brands that were created: Amazon, Yahoo, eBay, AOL and Homestore," Fitzmaurice said. "That's an unprecedented short period of time to build global brands."

Indeed, the current market caps of those companies, excluding merged AOL, adds up to almost $40 billion. Not bad for a few B2C startups.

Amerindo, which focuses on emerging tech companies, expects a strong short-term rally in the Nasdaq and emerging-technology stocks later this year, and then another huge upward surge in 2002 and 2003.

Slowing Turbines

Capstone Turbine Corp. said last week that rising fuel costs and pollution problems in China have triggered an interest there in its micro-turbine power generators, but analysts said that overall demand for the Chatsworth company's technology would dip dramatically.

Consequently, Capstone's share price has fallen. It opened June 4 at $32.31 per share and closed June 6 at $28.74, giving it a market cap of $2.3 billion.

The bad news came June 4, when a Merrill Lynch analyst cut estimates for the number of micro-turbines that Capstone will deliver this year from 2,800 to 2,100 and next year from 7,900 to 4,100.

Capstone spokesman Keith Field declined to comment on the Merrill Lynch estimates.

"We don't make predictions or guesses," he said. "We count orders."

So far ,Capstone has shipped 1,310 microturbines - 307 in the first quarter of 2001, 790 in 2000, 211 in 1999 and two in December 1998.

The refrigerator-sized micro-turbines, which come in 30-kilowatt and 60-kilowatt output, offer en ugh juice to power, for example, a small business or a home on-site. The devices generally cost between $30,000 and $60,000 each.

They are also increasingly being used to power electric buses, like the ones that will be rolled out for the first time in China this month.

The recent deal with manufacturer Beijing Chargeking, Beijing Tsinghua University and the Chinese Academy of Sciences is part of Capstone's effort to find new applications for its micro-turbines.

Last year at this time, Capstone was one of the hottest IPOs that came out the door, raising $130 million in the offering. Its stock had rocketed to high of $98.50 per share by last August, up from its offering price of $16.

Capstone's early investors included Microsoft co-founder Paul Allen's Vulcan Ventures and Benjamin Rosen, the VC who helped found Compaq Computer Corp.

The company began ramping up production when the state's energy woes began intensifying, and with its early lead, it has so far been able to keep up with competition from major players like Honeywell International Inc., Caterpillar Inc. and Ingersoll-Rand Co., which also develop micro-turbine products.

Capstone began shipping its micro-turbines in December 1998, but it has never been profitable. It reported a net loss of $9.5 million (13 cents per share).for the fiscal first quarter ended March 31, down from a net loss of $148 million ($36.49 per share) for the like year-earlier quarter.

Revenues have risen steadily, however. The company reported revenues of $8.9 million for the first quarter, up from $3.7 million in the like year-earlier quarter.

The market for buses has not taken off for Capstone in the United States. Only a few municipalities like L.A.; Tempe, Ariz.; and Tampa, Fla have been customers. But the Asian market has huge potential.

The high-tech bus, energized by two of Capstone's 30-kilowatt micro-turbines, recharge the battery packs of the buses while they are in operation. Fuel mileage is about double that of traditional-engine buses. They are also much cleaner, and easier to work on.

In his Monday announcement, Merrill Lynch analyst Sam Brothwell said Capstone faces competition from more established, large-cap companies like Caterpillar. The power crisis in the state has been "both a blessing and a curse for Capstone," Brothwell said, because it created a demand for power-generation products but also caused consumers to panic, making it more difficult to sell new and unproven products.