The InfoTeck 100/99/6

Mary G. Meeker

WHY: While the choices aren't surprising, Meeker--as close to an Internet sage as you can get--gives them unexpected twists. Forget Amazon.com and Yahoo! Her money is on Cisco Systems. Its networking gear acts as the plumbing that makes the Net hum. That's why they touch more Net users than almost any other company's products. ''When I think of Internet investing, it's the first stock I think of,'' she says. Another plus: The stock is less volatile than other Net highfliers.

AOL is another veteran, but its ace in the hole is ICQ, the instant-messaging service AOL bought in June that now has 32 million users. Meeker's praise is blunt: ''I think ICQ is one of the most valuable assets on the planet.'' Meeker downplays concerns that AOL may have difficulty delivering broadband service. She thinks the Web won't travel over fat pipes in a big way until 2001. That will give AOL time to craft a strategy.

eBay makes the cut because of its global appeal and high-margin auction model that connects buyers and sellers. Meeker considers eBay unique. ''I haven't seen a company that has captured people's imagination like this since Apple,'' she says. Still, further acquisitions such as its purchase of real-world auctioneer Butterfield & Butterfield could limit opportunities for high-margin growth.

Net stocks' sharp plunge amid a larger market slide is hard to ignore. Meeker says some downside is still likely but feels Net stocks are close to the bottom. She calls the correction ''healthy'' and expects it to separate followers from leaders, who will be ahead of current valuations by yearend.

James D. Poyner Jr.

WHY: Storage giant Quantum has a scheme to get more value out of a hidden gold mine: A ''tracking'' stock for its red-hot tape-storage business, which should provide sizzle even if shares tied to Quantum's old-line disk-drive unit continue to languish. With net margins of around 20% and projected revenue growth of 20% a year, Poyner thinks the tape-storage shares could quickly rise to $30--well above Quantum's current $21 price. And that's in addition to the half-share of the disk-drive unit investors would get for each existing share.

Poyner also likes Compaq--as long as the world's No. 1 PC maker moves quickly to replace ousted CEO Eckhard Pfeiffer. With the stock ''oversold'' due to pessimistic expectations, Poyner doubts it will fall below the current $23. And if a strong new boss is named within 45 days, the shares should rise to $35 by yearend. ''We're doggedly contrarian on Compaq,'' he says. ''But if they take all year to name a successor, they'll blow most of 2000.''

Poyner's third choice: Little-known Smart Modular Technologies, a contract manufacturer that specializes in making memory cards. Now, it's expanding into more profitable boards to go inside medical equipment and big telecom switches, which could boost operating margins by 20%. And a new Asian plant will let it target big Asian chipmakers. Plus, SMT has shown it can deal with adversity. ''They've been through the most titanic collapse in the memory market's history since they went public four years ago, but they've never had a quarterly loss,'' says Poyner. He expects the shares to hit $25 in six months, from $18 today.

Michael Kwatinetz

WHY: Microsoft may be getting knocked around by the Justice Dept., but when it comes to revenues and profits, it's still a stellar performer. In fact, this will likely be its best year ever, says Kwatinetz, thanks largely to two gargantuan software releases. This month, Office 2000 will update the popular productivity suite that includes word processing and spreadsheets and now lets users easily publish material on the Web. Promised for the end of the year is the release of Windows 2000, a major update of its Windows software for big corporate jobs.

And Microsoft's stock is a bargain. It's trading around 75, about 17% off an all-time high in early April. ''Their stock is cheap compared to where it has been trading,'' says Kwatinetz. ''Within the next six to nine months, their Net strategy will start becoming clearer, so I think they are going to be strong going forward.''

Kwatinetz believes Wind River Systems has a healthy future given its market--small operating systems for products such as microwave ovens and cars. A new version of its tools for creating miniprograms for these products is due shortly. He predicts 25% to 30% revenue growth and adds that Wall Street earnings estimates ''are not taking into account some big opportunities that might come Wind River's way.''

Allaire's future also looks bright. It sells tools that help companies become E-businesses by connecting Web sites to databases. The company, which went public in February, isn't making a profit yet, but Kwatinetz says revenues should more than double this quarter over a year ago.

Robert Anastasi

WHY: Last fall, the prospects for computer distributors such as Ingram Micro and Tech Data looked grim. To better compete with hotshot Dell Computer Corp., many PC manufacturers were beginning to streamline their distribution, even to the point of selling directly to customers, bypassing distributors. And Net retailers were starting to take a bigger chunk of the business. Investors drove the two stocks down 70% between September and March.

But the situation looked worse than it was, Anastasi says. He thinks Ingram Micro and Tech Data are still bargains at 28 and 41. ''In fact, some of the changes turned out to be good,'' he says. Compaq Computer Corp., for example, is paring down--from 39 to 4--the number of retailers and distributors that can buy directly from it. ''If you're one of the four, that's good. It put several billion dollars into play, and we think Ingram Micro and Tech Data will get the bulk of it,'' he says. And as the rest of the tech industry starts consolidating its distribution, the two can only pull further away from the pack. Internet retailers such as Buy.com don't want to have warehouses, so they're using distributors to ship their products. That means almost every sale over the Web is a sale for the distributor.

Anastasi's third pick is niche distributor ScanSource in Greenville, S.C. The $285 million company sells telephone equipment and products that collect data, such as bar-code scanners and point-of-sale computers. ''Its valuation is in line with Ingram Micro's, but it's growing faster and is more profitable,'' he says. If Anastasi is right, the dark days are passing for key distributors.

Blake Bath

WHY: The country's two biggest long-distance providers are Bath's top picks for one reason: ''The companies are much better managed than they have been in the past,'' he says. At AT&T, that's because of C. Michael Armstrong, who became chairman and chief executive in November, 1997, he says. And the second-largest long-distance player has been reenergized since WorldCom Inc. acquired MCI Communications Corp. last year and WorldCom's Bernard J. Ebbers became CEO of the combined entity.

The result: Bath sees a marked improvement in performance and prospects. Both companies finally have their costs under control. Bath figures that MCI WorldCom, now trading at 84, is worth 110 because of rapid growth in international and data traffic. ''WorldCom is trading at close to a market multiple, which is insane given that its growth over the next few years looks like it'll be 40%,'' he says. Although Bath thinks AT&T's acquisitions of cable companies are risky, he thinks the stock, now at 55, could hit 73 because AT&T is capitalizing on opportunities in wireless, data, and international services.

His surprise pick is Primus Telecommunications Group, a little-known upstart that's building phone networks in Europe and Australia, where former monopolies are opening their markets to competition. ''They've been a global deregulation attacker,'' he says. He thinks the stock, now at 17, could double over the next year. Since the company has assets that will be critical to companies expanding in international markets, he thinks it's likely that Primus will be bought within the next 18 months.

Paul Johnson

WHY: While there are dozens of flashy newcomers in the telecom-equipment industry, Johnson likes the prospects for a pair of tried and true powerhouses. Lucent Technologies, trading at 61, was spun off from AT&T in 1996 and has built a track record of surging revenues and profits. Although sales in the first fiscal quarter, ended Dec. 31, fell short of expectations, the company came roaring back in the second quarter with a 33% rise in revenues, to $8.22 billion. ''After the December quarter, there was a lot of shaking of heads,'' says Johnson. ''Then they put up a March quarter that was the envy of everybody.''

Longtime star Tellabs became a controversial stock last year after its proposed acquisition of Ciena fell apart. ''A lot of people thought management had signaled that they needed to do something because the industry is consolidating,'' says Johnson. Still, even on its own, the company, trading at 58, reported a record first quarter--benefiting from 15% growth in demand for telecom equipment. ''That's not going to slow down for a while,'' says Johnson.

His riskiest pick is Ciena, which provides equipment to increase the capacity of the fiber-optic cables that carry phone calls. The company is vulnerable because it doesn't have the soup-to-nuts product lines of Lucent and Northern Telecom Ltd. But it has been able to defend its core market against Lucent and is expanding into the optical switching market through its recent acquisition of Lightera Networks. Now at 32, the stock is ''less a safe bet, but it could make people more money,'' says Johnson.

Chris Stix

WHY: The fast-growing computer-networking field has produced its share of stars, but none burns as brightly as Cisco Systems, now trading at 112. Stix calls Cisco ''clearly the top pick'' in the category because it continues to outpace both traditional networking rivals and the giant telephone-equipment makers it now competes against. ''Management does a superior job of classic marketing--understanding customer needs and delivering on them,'' Stix says. That, plus Cisco's moves into hot markets such as small business, voice-over Internet technology, and wireless gear, give it the opportunity ''for continued explosive growth.''

A less familiar pick is Computer Network Technology, now trading at 23. The company, under new management, is a leader in ''storage-area networks,'' a new breed of networks designed specifically to connect server computers to vast arrays of storage disk drives. As demand for storage surges, thanks to the Web, Computer Network Technology, with 1998 revenues of $134 million, could see 100% growth this year in its storage-area networking business, Stix says.

Stix's third choice is former highflier Cabletron Systems. The company has suffered two years of falling results, but it got a new CEO on June 4 and appears to be regaining its balance. On the strength of fresh management and a few solid products, including a market-leading data switch and widely respected network-management software, Cabletron should see improved numbers this year. That could boost its depressed stock, now at 15--and make it a likely acquisition candidate, Stix says.

Mark Edelstone

WHY: Rambus has waited nearly a decade for its ship to come in. The company, now trading at 88, has devised a dramatically faster way to connect computer processors to memory chips. Now, it's about to hit pay dirt, Edelstone says. Rambus' technology has won the endorsement of mighty Intel Corp., which has the clout to drive industry standards. As a result, he says, within the next three to five years, ''Rambus will become the dominant memory architecture in PCs'' and other information devices. That should make it a big winner in the stock market.

Edelstone's second pick, Xilinx, is a leader in the esoteric and fast-growing business of programmable logic devices. These specialized chips allow creators of electronic products to customize them much more easily and rapidly than in the past. Xilinx, now trading at 46, ''will see a real payoff during the next two years,'' Edelstone says. In the sizzling programmable-logic category, ''it has the most fundamental momentum of any company.''

As growth in the electronics sector shifts to non-PC devices such as Web appliances and handheld computers, no company is better positioned to benefit than Texas Instruments, Edelstone says. TI, which is trading at 117, makes so-called digital signal processors, specialized chips that crunch through vast streams of data. DSPs are found in phones, hard drives, modems, and automobiles--and will become critical ''for virtually all communications and consumer products,'' Edelstone says. With its 50% share of the DSP market, ''Texas Instruments has to be a core holding in any portfolio,'' he says.

THE INFORMATION TECHNOLOGY 100

To compile the Information Technology 100, BUSINESS WEEK began with financial data from Standard & Poor's Compustat, a division of The McGraw-Hill Companies that has computerized information on 10,000 publicly traded corporations. We trimmed this universe to information technology companies and then added non-U.S. tech companies recommended by our network of foreign bureaus. To qualify, companies had to have revenues of at least $300 million with one exception. Internet companies with $5 million or more in sales were included because their impact is often more significant than their revenues.

We divided this collection of about 450 companies into eight industry categories, such as software and networking. Companies that did not increase revenues as fast as their industry were eliminated from contention. The remaining group of companies was ranked on four criteria that were given equal weight: shareholder return, return on equity, revenue growth, and total revenues. Companies with sharp declines in current financial results were excluded as were companies where other developments raised questions about future performance. Finally, the top 200 companies were reranked as a group.

Alphabetical Index Top 100 Table Next 100 Table

STOCK SYMBOLS are hyperlinked to company profiles on S&P Personal Wealth

REVENUES Latest available revenues for the 12-month period ended Feb. 28, March 31, or April 30. For companies that do not report quarterly, the most recent annual data were used. Includes all sales and other operating revenues.

REVENUE GROWTH Percentage change in revenues compared to the previous 12-month period.

RETURN ON EQUITY Net income available for shareholders divided by common equity.

TOTAL RETURN The total return to shareholders including reinvested dividends for the 12 months ended May 14, 1999.

PROFITS Latest available profits for the 12-month period ending Feb. 28, March 31, or April 30. Net income from continuing operations before extraordinary items.

Note: Data compiled by Standard & Poor's Compustat from sources such as statistical services, registration statements, and company reports that SPC believes to be reliable but are not guaranteed by SPC or BUSINESS WEEK as to correctness or completeness. This material is not an offer to buy or sell any security. Additional data: BUSINESS WEEK.