SAN FRANCISCO (01/04/2000) - "For what we are about to see next, we must enter quietly into the realm ... of genius!"
- Gene Wilder as Dr. Frederick "Fronckensteen" Frankenstein, Young Frankenstein (1974) Forget Net IPOs and b-to-bs; the next big thing in the eyes of Wall Street is the wireless Internet. With shares of wireless Internet pure plays like Phone.com and Puma surging, investors have already turned their sites toward this collision of the two fastest-growing global technologies. And with the Consumer Electronics Show looming in Las Vegas this week, the monster of wireless Internet is sure to capture the public imagination as well.
Three years from now, there will be twice as many wireless Internet users as there were Internet users at the beginning of 1999, according to analyst Mark McKechnie of Banc of America Securities. And with the recent adoption of Phone.com's HTML-like Wireless Application Protocol standard, wireless Internet seems ready to come alive. But, to be sure, there is fear on the Street.
How are investors, who are only now starting to understand the Internet stock market, supposed to come up with sensible investment strategies for the wireless sector? How else but through the metaphor of the greatest movie of the now-past 20th century: Mel Brooks' classic Young Frankenstein.
See, the stocks in the mobile Internet market can be divided quite easily into Herr Doctor's great creation, in five steps.
The first and most obvious incarnation of this new creature is the phone itself. But the dozens of funky designs set to be unveiled at CES promise that the phones of 2000 may make us forget the harmonica-shaped cell phones of today. Nokia dominates this business, with Ericsson and Motorola rebounding after recent failed attempts.
The next step is the monster's guts: chips and components. As phones evolve from the relatively simple task of translating voice to data, the pieces inside get more complex. Intel's recent purchase of DSP Communications is evidence that even the best and brightest semiconductor manufacturers need to acquire unique wireless competencies. And it's not just chips; RF Micro Devices has seen its shares double in the last six months in hopes that the mobile marketplace will spring to life. Similarly, Sawtek's audio filters and TriQuint's gallium arsenide circuitry and semiconductors let manufacturers cram more power into smaller phones.
On to the monster's brain. With WAP, Phone.com pulled together the disjointed efforts of Ericsson, Motorola and Nokia, establishing a global standard for the display of Internet content over small-screen devices - no easy feat. The WAP Forum now includes more than 200 computer, component, semiconductor and software makers. In exchange for giving away its microbrowser and server, Phone.com will get paid between $10 to $15 for each new subscriber. McKechnie likes to call Phone.com the "Netscape of the wireless Internet - with a much better business plan."
Dr. Frankenstein's laboratory is the software. A handful of companies are trying to build special applications, repurpose Web content or simply interface with existing data for wireless devices. The most prominent is San Jose, Calif.-based Puma, which went public in December 1996. Puma provides the connection between corporate databases and far-flung devices. The stock, which traded as low as $4.25 in August, is now above $71. But the handheld software field is still wide open. Other software and application makers of note include Aether Systems, Interleaf, SmartServ and Geoworks, a wireless stock currently trading at $14.38 after 18 months below $5.
Finally, the lightning that brings it all together is the network. The stock market has ignited stocks among makers of wireless networking equipment, and none more so than Qualcomm. Qualcomm was the top performer in the S&P 500 in 1999, surging 1,842 percent. But the old dogs in networking like Cisco Systems and 3Com are dueling alongside Qualcomm in the wireless arena, as are newcomers like P-Com, which makes access equipment that helps carriers speed the installation of high-speed wireless broadband connections.
What emerges is a frighteningly large beast that appears unstoppable. The Strategis Group of Washington estimates that high-speed wireless access revenues (excluding local business carriers) will jump from $11.2 million in 1999 to $3.4 billion in 2003. And the wealth creation of this monster? It might be even bigger.
(Cory Johnson is editor at large for TheStreet.com.)