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Technology is still healthy.

All stocks have taken a beating lately and especially those in the high-tech markets. Even the once secure biotech/pharmaceutical market has not escaped unscathed as biotech companies and their equipment suppliers restructure themselves for longer term growth in more conservative and higher payoff (i.e., drug discovery) endeavors, as some of their investor backing dwindles. Consolidation, somewhat stable over the past 12 months appears to be picking up again as Pfizer in a surprise announcement merged with Pharmacia in early July. A merger of GlaxoSmithKline and Bristol-Myers Squibb cannot be too far behind. The dearth of potential blockbuster drugs ($1 billion/year revenues) within the large pharmaceutical companies' pipeline combined with the increasing cost of their R&D efforts is likely to spur even more consolidation.

Biotech companies were spurred on by recent genomic efforts and technology developments and investor funding followed freely. The realization that any substantial revenues from this work could be several years away limits the amount of increasing investments.

The potential for accounting scandals in high-tech areas like those in the telecom arena could even hurt biotech's ability to rebound. Researchers at the Center for Research in Electronic Commerce at the Univ. of Texas in Austin, for example, recently released a study that investors in high-tech companies are more vulnerable to manipulation by insiders than conventional companies because of the lack of data on current profitability values in high-tech companies.

There is considerable good news in that biotech continues to gain ground in several areas, such as human gene therapy and agricultural applications. Adequate controls are in place for gene therapy experiments to protect patients and investors alike. Advancements in electronics are also continuing as technologies for shrinking the size of devices and integrating systems continues to exceed the industry's self-established roadmap. Inventories are down and technology baselines far exceed that in the installed customer base, which means that customers should be able to upgrade their equipment in the very near future to improve their own production.

The strength of the automotive industry continues to support the rest of the economy as auto makers continue to surprise everyone with new financing deals, vibrant new designs, and increased production. Their overall investment in R&D continues to be strong and without substantial changes or needs for changes.

Even the aerospace industry appears to be strong and healthy as homeland security and defense R&D spending shift into high gear in this year's fiscal budgeting and probably next year's as well. A smaller decline in commercial aerospace R&D has not been large enough to offset the larger increase in aerospace defense.

I would personally expect to even see the first increase in environmental R&D funding in more than a decade in the next year or so as environmental data and political pressure mount to force new research spending on emissions and energy use.

Overall, I'm optimistic about the health of technology. Corporate scandals have thwarted what would have been a reasonable recovery in mid-2002. The fallout from these events should be good overall for the economy and hopefully the potential for blindsiding high-tech investors will be addressed as regulations are put in place to protect all investors.
Tim Studt
Editor in Chief
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Author:Studt, Tim
Publication:R & D
Article Type:Brief Article
Geographic Code:1USA
Date:Aug 1, 2002
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