| 2008-02-01 |
Microsoft $45bn unsolicited offer to buy Yahoo!: our analysis
Yahoo! is a Top 10 Fund’s holding.

Why?
Microsoft considers, like many in the industry, that there is a paradigm shift happening in IT, whereby software will increasingly be available through the Web “as a service”. While corporations will likely choose to pay in exchange of support, consumers have already voted: they want it free, even if it means being exposed to somewhat intrusive online advertising. If that happens, Microsoft is strategically in a very uncomfortable position, especially as Google can leverage its dominant position on search to aggressively seize the opportunity to unravel Microsoft.

Steve Ballmer, Microsoft’s CEO, recently stated his goal of making up to 20% of revenues from online advertising within 5 years. There is no way that Microsoft can achieve that goal alone. Microsoft Internet business is second-tier, according to Steve Ballmer himself. It does not have the required scale: Microsoft’s Internet division has been loosing money ever since it was founded 11 years ago. There are not so many large Internet companies to buy: Yahoo! is the obvious choice.

Why now?
Discussions between the two companies have been going on since the end of 2006 and the board of Yahoo! already rejected an acquisition offer. Yet, a few quarters after Jerry Yang, Yahoo’s founder, took back the helm; the turnaround has yet to happen. Microsoft strategic dilemma is bigger than ever. And, at $19 as of January 31, Yahoo!’s stock price is truly a bargain. Taking out $10 of the participations in Yahoo! Japan and China’s Alibaba, Microsoft’s bid values yahoo! at around 1.8 times its 2007 sales, quite cheap for such an asset.

Could we see other offers?
We do not see any traditional IT player making a counter offer. IBM, Oracle, HP are all not focusing on the Internet market. If someone should make an alternative offer, it could only be a media player like News Corp, Viacom…

What is the outcome?
The most likely is that Yahoo!’s board will say that the offer is unacceptable and, at the same time, start negotiations. We think that the final offer should be higher than the current offer.

| 2007-11-14 |
Cisco's quarterly results: fuss and reality
Street reactions to Cisco’s quarterly results were pretty steep so it probably is worth spending some time reviewing those results.

What everybody could read on Bloomberg:
"Cisco said a dramatic decline in sales to car and financial companies is curbing growth"
"US companies have squeezed information-technology spending"

What the company said:
Sales grew 17% year on year. US grew 13%. Beating guidance, top and bottom line, setting strong upcoming quarter. This is all the more outstanding as, contrary to many a US company, there is no currency boost here since most of Cisco’s sales are invoiced in USD.

Within the US:
Service Providers grew in the low 20ies.
Commercial grew 20%.
US Enterprise, which includes Government and Federal, grew in the mid single digits. US Enterprise continues to be lumpy (it has been growing in the single digits for now three out of the last four quarters, nothing new). US Enterprise makes up 40% of US sales, which represent half Cisco’s sales. Hence, US Enterprise represent 20% of total sales. In Financial and Automotive in the US, the company saw "pretty dramatic y-o-y- decrease of orders". Financials account for 8% of US Enterprise, that is 8% of 20%, i.e. 1.6% of total sales. Cisco did not give the ratio for automotives.

Our assumption:
"dramatic declines" is indeed worrying but here again, it only applies to the Financial and Automotive sectors of US Enterprise. One should also bear in mind that what Cisco calls "US" only applies to orders from US companies shipped to the US soil. Whenever Goldman Sachs, for instance, places an order for its Eastern European, Latin American or Asian operations, it is reported by Cisco as non-US sale.

If one wants to read through Cisco’s results a confirmation that the US is on the verge of entering recession, then how come are US Commercial growing by 20% ? US Commercial revenues are originated by smaller enterprises, that are much less global than the Fortune 500, hence organisations that are very sensitive to any domestic slowdown in the economy.

Our opinion is that the quote "US companies have squeezed information-technology spending" was put out of context. This was an answer to a question from the JP Morgan analyst who tried to anticipate the timing of US Enterprise spending growth rising again because it would help Cisco go above its 12-16% official growth pace.

The fuss around Cisco may thus have been an easy scapegoat for equity investors to lock their profits as we are now close to the end of the year. Indeed, the investors who bet on US Tech index stocks early this year out-performed by and large their peers and their index. They may likely feel that it's time to lock those profits. And the fact is that the most spectacular falls on Tech stocks were precisely on the very stocks that went up the highest.

As soon as the portfolio management team saw the reaction on stock markets, it quickly trimmed our positions on stocks with strong momentum: Nintendo (already trimmed early November), RIMM (once more !), Google. Positions on Juniper and Foundry, two stocks with strong momentum, were already trimmed earlier.

Stock market jitters also create interesting opportunities the team is working on.

| 2007-06-21 |
Stock-option backdating scandal : much ado about nothing…
Stock-option backdating scandal : much ado about nothing…
The US option backdating issue emerged early 2006 when it was revealed that numerous companies backdated the date of attribution of stock-options in order to better incentive their executives and key employees. Technology was by far the hardest hit sector with, at one point, more than 100 companies involved. It did not help that the scandal peaked in the summer 2006, just in the midst of a market correction. Since then, there has been a risk premium on the related stocks. For instance, Altera was recently able to file all late financial statements as the audit the company launched found nothing material. The stock immediately rebounded : Altera is up 14.5% year-to-date (as of June 20, 2007).

The over-a-year-long probe (both from SEC and the US Department of Justice) is now nearing completion and the outcome is much smaller than what many may have feared. On May 13th , the US SEC announced that Hewlett-Packard unit Mercury Interactive and Brocade Communications Systems would be the first to settle civil fraud charges. HP agreed to a fine of USD28 million while Brocade will pay just USD7 million. Compared to recent famous typical financial fraud cases, the fines are very small. How can one explain that the high level of noise made with stock-option backdating results in so little ? There are several answers.

On a legal standpoint, proving wrongdoing is hard. Even so, the offence to shareholders is small. Nothing to compare even by far to cases like Worldcom, Arthur Andersen or Parmalat which have all gone bust or to cases like the accounting fraud stories that recently hit Fannie Mae (USD400 million fine).

On a business standpoint, the US are increasingly worried that over regulation is pushing companies to raise money in non-US markets. The US will just not their domination of financial markets go away.

Financial market rules, like the ones prevailing on the Nasdaq, state that companies unable to file their financial results are, after a given period, delisted. Rules are supposed to be applied. Yet, beyond Mercury Interactive (now HP) and Comverse Technology, further delistings have still yet to happen. The reason is that there is too much trading money at stake. Delisting so many stocks is something the Nasdaq certainly does not want to consider.

Such an outcome is in line with the scenario we had for the management of our Funds. This is why we kept the holdings in stocks involved in stock-option backdating. We said end 2006 that the stock-option issue would be old history within 6 to 12 months. Even though there is a dearth of auditor resources on the market, we remain confident that, by year end, it will not be mentioned anymore. And auditors will need to find another mission.

| 2007-03-08 |
Does the Nasdaq 100 deserve its reputation ?
The Nasdaq composite is a broad index with more than three thousand companies. A subset of the Nasdaq, the Nasdaq 100 is an index of the 100 “biggest” companies. , The influence of the Nasdaq 100 is tremendous as the massively traded QQQQ relies on it.

We were surprised to see the extent to which some stocks were influencing the Nasdaq100 so we looked closer. Here is the breakdown of the top 10 components, their Nasdaq 100 weight as well as their market capitalization’s and their current price, which gives the following :
to read the full article)

As of March 05, 2007

Though Microsoft remains the first stock in terms of market capitalization, Apple is now the top Nasdaq 100 weight, and Qualcomm is not that far from Microsoft. It is worth highlighting that the sum of Apple & Qualcomm market capitalizations makes only half of Microsoft one’s.

Why such a spread between the index weight and the market capitalization ? The Nasdaq 100, contrarily to how is computed the Nasdaq Composite, is a modified-market capitalization weighted index. This has nothing related to the natural adjustment within an index to the float of the company.

The weighting of the Nasdaq 100 is actually different from the three usual ways an index is computed : by market-cap weighting, by price or by equal weighting.

The Nasdaq defines this approach as “ retaining in general the economic attributes of capitalization-weighting while providing enhanced diversification”. Eligibility criteria are usually well-known, but the way weightings are computed is based on a proprietary algorithm, therefore not published.

That an index so massively used by investors lacks transparency and artificially boosts some stocks by giving an undeserved weight is peculiar. We wish that others tackle this issue so that a public debate can start.

| 2006-08-31 |
M&A trend as brisk as ever
A very strong M&A trend also impacts the IT industry. In 2005, the $5.8bn Siebel acquisition by Oracle and the $13.5bn Veritas Software acquisition of Symantec made the headlines. Interestingly, new acquisitions in software have happened recently. End of June, EMC made a $2.1bn offer for RSA Security, a security company. IBM acquired MRO Software for $740 million. The largest deal was the $4.5 Mercury Interactive acquisition by HP Compaq, the third largest M&A since 2005. IBM does not stand still. It also made an offer on Filenet for $1.6bn. Filenet is a software company in the document management sector, competing directly against Documentum, which was acquired earlier by EMC.

The M&A deal flow also include other sectors. In the storage networking space, Brocade acquired its McData rival (McData is a spin-off from EMC) for $713 million. Semiconductor, once absent from the M&A game, is now also entering the fray. AMD acquired the graphic card vendor ATI for $5.4bn. The semiconductor division of Philips is absorbed by a private equity group consisting of KKR, Silver Lake Partners, Alpinvest for $9.5bn.

All these acquisitions are welcomed. They give life to the equity markets for most of offers come with a significant premium. Moreover, less players equals to a better pricing environment. The days IT corporate buyers could get the prices they wanted from their IT suppliers is now gone.

| 2006-07-31 |
Asia close to dominate the subcontracting business
The research body MMI has just released its annual scorecard for subcontractors, published by the electronic magazine Electronique International. The 13 top subcontractors grew their sales in 2005 by a respectable 16.3% to $102 bn. Asian players keep winning market share in market once dominated by US vendors. Flextronics (the merger of the US-based Flextronics and Singapour-based Nasteel Electronics), Sanmina, Solectron and Celestica had decelerating sales in 2005 while players such as Hon Hai Precision, Quanta and Asustek grew at an astonishing pace of 75%, 51%, 49% respectively. In 2005, Taiwan had 3 of the top 5 players, 5 out of 10, 12 out of 20. How did we get here ?

Taiwanese have a very favourable cost structure thanks to the huge cheap Chinese labour force. The subcontracting still relies on a lot of manual tasks which tend to be very costly in developed countries. US subcontractors acquired a lot of capacity from telecom equipment vendors (Alcatel, Lucent, Nortel) at the end of the nineties, a period during which they all switched to a fabless model. Most of these plants were located in developed countries. US subcontractors ended up closing these facilities which were not competitive anymore at a loss to open new facilities in Asia. Asian players gained then a lot of market share. But this trend is over by now, thus there are other factors to take into account to explain why the market share shift keeps going on.

Business models matter. US vendors position themselves as traditional subcontractors (Electronic Manufacturing Services or EMS), taking in charge manufacturing, shipping and maintenance on behalf of IT specialists such as Cisco, IBM, Nokia … Taiwanese define themselves as ODM (Original Design Manufacturers). They can offer leading edge very cost-competitive designs to their customers which rightly anticipate market needs. The business value they deliver is indeed superior. At this game, EMS players keep running behind as we can see from the numbers published by MMI.

Unfortunately, in a highly competitive market, growth comes often at the expense of margin. Hence, Taiwanese try to better monetize their design capacity by developing their own brand. They are then called OBM (Original Business Manufacturers). Acer (PC), Asustek (motherboards, laptops, PC), BenQ (handsets) or HTC (PDA) exemplify this trend. The key challenge OBM face is how not to infuriate their customers who can consider them as new competitors.

| 2006-07-05 |
Focus on IT Asset Management in Fund Forum 2006

| 2006-04-19 |
Internet is the future of technology
Internet ubiquitous broadband connectivity has made the emergence of these new Internet players possible. Google, eBay and other Internet players herald the way technology is going to be marketed in the future : on demand software, sold as a service. This will happen both at the consumer and at the corporate level. Users will access tech applications through a standard browser. The related application infrastructure is moving off-premise. Whether these new players derive their revenues from advertising, subscriptions or transaction fees does not matter so much. What makes the business model so attractive is that customers, by bringing their own information, contribute to increase the business value of the service. The law of increasing returns of off-premise software (the more customers, the more appeal for the platform, the more customers) fully applies at the age of Internet.

The on-premise tech wave made the success of Microsoft, SAP among others. Our challenge as fund managers of technology funds is to choose the next winners. Let us just illustrate that point with two related stocks already owned by the Fund last year : Salesforce.com, the pioneer of on demand CRM, second best contributor to the 2005 performance. Citrix Systems, #4 best contributor on a 6-month basis, a strong leader in a niche on-premise software market, which has been able to position itself smartly for the on-demand market.

| 2006-04-01 |
Change of the IT Funds Biopharma fund manager
In November 2003, IT ASSET MANAGEMENT launched the ITFunds BioPharma fund. Our ambition was and still is to provide the investor with the same solid & consistent track record, the same servicing and the same in depth analysis of ongoing trends as with ITFunds Technology Global and IT Technologies Investissement. The initial fund management team, consisting of two seasoned portfolio managers coming from the Private Equity space, did quite an honorable job. Two years experience in Biotech investment however have led us to consider that having the fund competing in the top league with the best internationally available funds required a larger team of several portfolio managers with long experience in listed Biotech companies.

After an in-depth analysis of top Biotech Asset Management teams, IT ASSET MANAGEMENT is pleased to announce that it has partnered with one of the world leading teams, MEDICAL STRATEGY.
MEDICAL STRATEGY is a specialized boutique based in Munich and established since 1992.
The team of MEDICAL STRATEGY combines senior profiles with complementary background and decades of experience both in the field of health as well as finance. This results in a deep understanding for the scientific developments especially those relevant for investments in the Healthcare market.

Dr. med. Michael Fischer
Doctor of medicine, more than 25 years experience in the field of Healthcare.
Dr. Stefan Meyer
Biologist, more than 10 years experience in the field of biotechnology and pharmaceuticals.
Dr. Jörg Blumentrath
Pharmacologist, several years experience as fund manager in the Healthcare sector.
Harald Schwarz
Graduate Economist more than 20 years experience as pharmaceutical manager.

In addition, a network of external consultants are available for Medical Strategy for special questions.


To illustrate Medical Strategy’s excellent track record, we provide you with the VCH Expert Biotech fund’s performance graph compared to the NBI in the same currency since inception of the fund. The VCH Expert Biotech fund has an investment universe very close to the IT Funds BioPharma’s universe; the main difference lies in the fact that VCH Expert Biotech (rated in Euro) hedges the USD risk whereas IT Funds BioPharma (rated in USD) doesn’t.

| 2005-12-08 |
IT Asset Management is "nominated" European Boutique of the Year by the British magazine Funds Europe
- Press Release -

IT Funds TECHNOLOGY GLOBAL’s assets rise above EUR 100 Million and IT ASSET MANAGEMENT IS “nominated” European Boutique of the Year by the British magazine Funds Europe

Paris, December 8th, 2005.-

The Luxembourg Sicav IT Funds TECHNOLOGY GLOBAL (“Lipper leader” & 4 S&P stars- Offshore databank), dedicated to global information technology and registered for sale in Austria, Belgium, France, Germany, Italy, Luxembourg, Monaco, the United Kingdom & Switzerland, has, for the first time, passed the EUR 100 million milestone. Capitalising on trust granted by a growing and broader basis of European investors (whose number has more than doubled over the last 12 months), IT Funds TECHNOLOGY GLOBAL has been able to increase by three times its assets since the beginning of the year (i.e. EUR 108M as of december 8th , 2005). 75% of new assets derive from inflows whereas the remaining 25% can be ascribed to performance. Teamwork, dedication, humility and self discipline are key to IT ASSET MANAGEMENT’s success.
Combining sound financial competence and consistent industrial analysis, IT ASSET MANAGEMENT has successfully built a solid track record expanding over 13 years. This not only is one of the longest track records by the same team but furthermore is world-wide one of the most consistent in terms of performance. IT Funds TECHNOLOGY GLOBAL offers an efficient investment vehicle for investors that want to take advantage of the growth potential in the technology sector.

The specialised British magazine, Funds Europe, has just nominated IT ASSET MANAGEMENT amongst the 4 “European Boutiques of the Year” (see enclosed article). This highlights IT ASSET MANAGEMENT’s constant aim at excellency and its resolve to always put the client in the heart of its approach.

The reach of significant assets together with this new distinction help giving IT Funds TECHNOLOGY GLOBAL a better visibility among European investors and strengthens its development in a context which is furthermore favorable to technology stocks. In the market’s new environment, IT ASSET MANAGEMENT’s size and its customer centred organisation should allow IT Funds TECHNOLOGY GLOBAL to serenely round the cape of EUR 200 million while preserving the same management quality and service to the customer.

| 2005-10-05 |
Dialogue en direct de Muriel Faure sur Boursorama
Retour des technos? Muriel Faure vous répond en direct à 17h.
Relisez l'intégrale de la discussion.

| 2005-06-23 |
IT Funds Technology Global : Fund of the month
Recent article released by Portfolio Concept, a leading German Portfolio Manager upon the fund IT Funds Technology Global, "the fund of the month".

http://www.portfolio-concept.de/fonds/fondstipp.html

| 2005-06-15 |
IT Technologies Investissement: Ranked 1st out of 91 funds Year-to-date in its category : + 11.08%*
IT Technologies Investissement is the top performing fund in its category (International TMT commercialized in France) out of 91 funds according to Standard and Poor’s. The fund has returned +11.08%* year-to-date. Over the same period, the sector average was +3.67%.

In addition, during the month of May, the fund saw its highest performance since November 2002 : +15.3%.

IT Funds Technology Global, is ranked 3rd out of 150 Luxemburg- based funds according to Standard & Poor’s.

* Source: Standard & Poor’s Internationl TMT Category based in FRANCE as of 31/05/2005

| 2005-04-27 |
IT AM : Manager of the Month
In April, IT Asset Management was picked by Lipper France as Manager of the Month.

The Manager of the Month is picked when its fund, here IT Technologies Investissement, is both the best Monthly performer and a Lipper Leader for Consistent Return.

A Lipper Leader for Consistent Return is a fund that has provided consistently superior returns when compared to a group of similar funds.

To read an inteview (in French) of Benoit Flamant, manager of IT Technologies Investissement by Lipper Leader - Boursorama : http://www.boursorama.com/conseils/focus/focus.phtml?news=2622804

| 2005-04-11 |
What future for Tysabri ?
Early April, Biogen Idec and Elan announced that a third patient treated with Tysabri had died from PML. The patient was treated with Tysabri monotherapy in an open label Crohn’s disease trial. The patient was originally misdiagnosed as having malignant astrocytoma and died in December 2003. In light of the recently discovered connection between Tysabri and PML, the patient’s case was revisited and confirmed as PML by MRI review and tissue diagnosis. During the course of the patient’s treatment, they received three monthly doses of Tysabri, followed by nine monthly doses of placebo and 5 additional monthly doses of Tysabri.

The identification of this third case of PML significantly reduces the likelihood that Tysabri will ever return to the market to near zero. The fact that the patient received Tysabri monotherapy is particularly problematic, since it negates a widely held theory that Tysabri might only cause PML when used in combination with Avonex. At this stage it would be difficult for any physician to justify Tysabri-use from a risk-benefit perspective given that: (a) Tysabri is linked to PML regardless of whether it is administered as monotherapy or in combination with Avonex; (b) patients treated with Tysabri are estimated to be133 times more likely to contract PML than the general population; and (c) PML is a deadly disease and three Tysabri-treated patients have died.

| 2005-03-30 |
Genetic learning
Upending prevailing genetic theory, a team of scientists at Purdue University has discovered a mechanism in plants that allows them to correct defective genes from their parents by tapping into an ancestral data bank of healthy genetic material. In essence, the plants back up the evolutionary path and use past genes to restore traits that would otherwise be lost. The mechanism appears to be a way for self-fertilizing plants, which are more likely to suffer from the negative consequences of inbreeding, to maintain a healthy level of genetic diversity and increase their chances of survival. It could also be a way for plants to adapt to changing environmental conditions by having a store of diverse traits at their disposal. The proposal offers a radical addition to the widely embraced laws of Mendelian genetics, which date back to the mid-1800s; plants and animals inherit only two copies of a gene, one from each parent. If both copies were defective, a plant would have no ability to correct the error (Nature Journal).

| 2005-03-15 |
10 years later, how big are Internet stocks ?
The commercial Internet has just turned 10 years old (early 1995, Netscape released the first version of its browser which made the Internet a mass market). It was then widely assumed that Internet impact would be 10 times as big as the PC. Thus value creation would be 10 time bigger as well.

10 years later, it is fair to say that Internet is indeed 10 times bigger that PCs. Without Internet, the iPod would just not exist. Without Internet, nobody would be able to send emails, chat with friends, find information on the Web, publish on blogs, … Internet is now so much used by corporations that turning it off would just be a nightmare.

What about value creation ? As of March 11, the top 4 Internet stocks (Ebay, Google, Yahoo!, Amazon.com) market capitalisation accounts for $160 bn. A significant amount. Yet this is less than one fourth the top 4 IT stocks market capitalisation (Microsoft, Intel, IBM, Cisco which are valued as a group at $700 bn). To be fair, with a 10-year history, Internet stocks are much younger than their infrastructure counterparts (25 years for PC-related stories like Microsoft, Intel and Cisco, IBM being obviously even older). Yet, the huge gap between expectations (a 10x improvement market capitalisation versus IT) and the reality (one fourth) explains by and large how big the bubble was.

Back in 1998, with so many Internet stocks popping up, we, at IT Asset Management, faced a hard choice: should we embrace the Internet wave and create an Internet fund ? The issue is that we were uneasy with so many aspects of Internet stocks that we decided not to build such a fund and to stay on the infrastructure side. Retrospectively a good decision even if it was hard to explain for a while.

When looking at those numbers, it is also striking to see to what extent the US took a giant share of the pie by being very early. Ironically, as US VCs put so much money on Internet stocks, even with so many Internet stories going bust, the Darwinian law still applies. Europe lags well behind. The top 3 French Internet stocks (Boursorama, aufeminin.com, LDLC.com) account for € 650 million, far from the top 3 US Internet stocks $146 bn market capitalisation. The ratio France vs US is actually a mere 0.6% …

| 2005-03-14 |
Significative announcement for Genentech
Genentech (DNA) was up 25% overnight following the announcement that an ECOG Avastin lung cancer trial has been stopped due to its success in meeting the primary endpoints. Avastin (in combination with chemotherapy) demonstrated a significant increase in survival benefit, which makes it the first drug to do so. The potential market for lung cancer probably exceeds that of colorectal cancer, for which Avastin is already approved. We expect this news to drive sales of Avastin beyond analysts current expectations.

| 2005-03-04 |
Good news for OSI Pharma
Tomorrow, AstraZeneca (AZN) will seek input from FDA's Oncologic Drugs Advisory Committee (ODAC) concerning what additional actions are necessary in regard to Iressa marketing while FDA reviews data from a failed confirmatory survival trial. The FDA scheduled the meeting to discuss Iressa's risk/benefit profile following the drugs failure to demonstrate a statistically significant survival benefit in the 1,692-patient Iressa Survival Evaluation in Lung Cancer trial. However, according to AZN, ODAC will not vote on whether Iressa should be removed from the market. Many analysts regard the convening of such a committee meeting prior to the complete review of the data by FDA as a reflection of the agency's new spirit of transparency in conveying clinical trial results and safety information to physicians and patients.

The company sent a "Dear Doctor" letter on Dec. 17th outlining the ISEL results and recommending that prescribers consider alternative therapies for their patients (i.e. Tarceva from OSI Pharmaceuticals). The letter will also be published on a monthly basis in 10 oncology journals.

Importantly, AZN will also analyze the role of epidermal growth factor receptor mutation status in relation to Iressa's efficacy. Iressa was associated with a statistically significant survival benefit in non-smokers and Asians in the ISEL trial. The company is collecting tissue samples from participants to study the relationship between EGFR mutation and survival. Data from the study is expected to be available in June and will hold significant interest for all developers of targeted therapies. Possible explanations beyond genetic heterogeneity include the dose of Iressa given, schedule and the geographic location of the trial sites.

| 2005-02-15 |
Positive change at the FDA
The U.S. Food and Drug Administration said on February 15th it was creating a new drug safety board to improve the monitoring of medicines already in the marketplace, a response to charges the agency has failed to protect the public from dangerous side effect. The announcement came on the eve of a three-day FDA meeting called to discuss the safety of painkillers like Merck's now-withdrawn Vioxx that have been linked to an increased risk of heart disease and stroke. As we outlined in our November Monthly letter, criticism of how the FDA monitors the after-market safety of drugs has grown, starting with concerns about suicides in youth who took antidepressants and followed by Merck's September withdrawal of Vioxx. Questions have also been raised about the safety of Pfizer's Celebrex and Bextra, painkillers similar to Vioxx, and about whether they should remain on the market.

The FDA already has an Office of Drug Safety to watch for problems that appear after drugs win approval, but consumer groups and some lawmakers have questioned its efficacy. The new board will include representatives from the FDA and medical oversight experts from other agencies like the Veterans Administration and will consult widely with patient and consumer groups. Any Board recommendations for new warning labels or a drug's withdrawal from the market will still have to go to the FDA's Center for Drug Evaluation and Research before becoming enacted.

The Bush administration proposed a 24 percent increase in funding for the the Drug Safety Office in its recent 2006 budget request sent to Congress, including 25 additional employees. Although broadly seen as a possible negative for pharma, one optimistic analyst was quoted as saying "the creation of the safety board may benefit drug companies as it will shift some of the burden of liability for safety from the pharmaceutical industry to the government".

Meanwhile, in what should be seen as a significant positive for the biotech sector, President Bush has decided to nominate Dr. Crawford as his new FDA Commissioner. Dr. Crawford has been acting commissioner for almost a year and was deputy commissioner from early 2002. The proposal may attract some negative attention in Congress given the FDA's track record in recent years, but a permanent appointment was required and will likely be seen as positive overall.

| 2005-02-01 |
Looking back at 2004 pharma industry numbers
According to the latest data from IMS, sales of prescription-drugs rose 8.3 percent in 2004, the smallest gain in nine years, hurt by factors including Merck's recall of Vioxx and over-the-counter versions of ulcer medicines such as AstraZeneca Prilosec. Sales increased to $235.4 billion from $217.3 billion in 2003.

Pharma companies are facing the expiration of patents between 2002 and 2007 on products worth $82 billion in sales, or a fifth of the industry's $400 billion annual worldwide revenue. Other factors slowing growth included a mild flu season, higher consumer co- payments for medicines and safety concerns about antidepressants. The Standard and Poor's 500 Pharmaceuticals Index fell 9.5 percent in 2004, led by a 30 percent decline in Merck shares after the company removed from the market its painkiller Vioxx because of its link to heart attacks.

Pfizer Inc. remains the No. 1 seller of prescription drugs in the U.S., followed by GlaxoSmithKline, Johnson & Johnson, Merck and AstraZeneca. Amgen is No. 8 spot for the second consecutive year. Amgen is the fastest growing company on the list. In 2004, profitable biotech companies growth rates exceeded 25% and IMS expect biotechnology products to continue to fuel growth in 2005.

Sanofi-Synthelabo SA's $63 billion takeover of Aventis SA in August created the seventh largest drugmaker, Sanofi-Aventis, and displaced Eli Lilly from the top-10 list. Pfizer's cholesterol-lowering medicine Lipitor remained the top-selling drug for the fourth consecutive year, according to data from IMS.

Top 10 Drugmakers in 2004, by U.S. Sales
Company Sales Growth
1. Pfizer Inc. $30.7 Bln 5%
2. GlaxoSmithKline $18.8 Bln 1%
3. Johnson & Johnson $16.2 Bln 7%
4. Merck & Co. $15 Bln 8%
5. AstraZeneca Plc $11.3 Bln 12%
6. Novartis AG $10.2 Bln 7%
7. Sanofi-Aventis $10 Bln 3%
9. Bristol-Myers Squibb $9.2 Bln -4%
10. Wyeth $8.2 Bln 11%

Top Selling Drugs, by U.S. Sales
Drug Drugmaker Sales Growth
1. Lipitor Pfizer $7.69 Bln 14%
2. Zocor Merck $4.58 Bln 4%
3. Prevacid Tap/Abbott $3.8 Bln -5%
4. Nexium AstraZeneca $3.78 Bln 23%
5. Procrit Johnson & Johnson $3.19 Bln -3%
6. Zoloft Pfizer $3.09 Bln 8%
7. Epogen Amgen $2.99 Bln -4%
8. Plavix Sanofi-Aventis $2.98 Bln 33%
9. Advair Diskus GlaxoSmithKline $2.91 Bln 26%
10. Zyprexa Eli Lilly $2.83 Bln -10%

| 2004-12-23 |
The return of mergers&acquisitions is a positive signal
M&A recent announcements have been plentiful. Despite a strong resistance from PeopleSoft’s management and an opposition from the US DOJ, Oracle has finally succeeded in acquiring PeopleSoft (and JD Edwards). In the US mobile industry, after Cingular acquired AT&T Wireless, Sprint is to merge with Nextel. Symantec has just made an offer to acquire Veritas Software in order to become the #4 global software vendor. Electronic Arts, the gaming software giant, is vying for Ubisoft. In the Netherlands, the computer service company Pink Rocade is targeted by Getronics and Ordina. This is probably not over.

A crisis always leaves some players weakened. A low stock price attracts buyers among those that came out of the crisis stronger. This is nothing but a very traditional process which fully applies to the IT industry.

Anti-trust concerns certainly were an issue in some sectors, Oracle nevertheless has won its battle against the US DOJ.

There is an unusually high number of hostile offers (Oracle/PeopleSoft, Ordina/Pink Rocade, Electronics Arts/Ubisoft). It was widely assumed so far that hostile acquisitions should be avoided as the actual asset of an IT company resides in its employees who can easily quit. Yet, a lot of executives often have a rather high ego and thus are reluctant at fairly considering offers. As Oracle has shown that a hostile take over is feasible, this is a further obstacle removed.

Yet, consolidation can only occur when the market is ready, when investors are willing to take some risks. 2004 was just the opposite, the year where risk aversion was at the highest. This is why we think that this new M&A activity is a very positive sign for the IT industry and technology stocks in particular. It could well be a signal that, at last, investors are looking again at growth and are willing to take more risks. As soon as the market is more favourable to M&A, the acquisition backlog starts to be unleashed. Investors are thrilled. The cycle can start again.

| 2004-12-15 |
A rather mild downturn
With IT stocks down more than 80% from peak to trough, we tend to assume that the IT downturn had been terrible, leaving everybody in a dire strait. Of course, mega-consolidation is the only way to take the IT industry out of its misery … So, let us look at the top 10 constituents of the MSCI IT. These are Canon, Cisco, Dell, HP Compaq, IBM, Intel, Microsoft, Nokia, Oracle, Qualcomm. We retain two metrics : 2004 sales estimates versus 2000, the peak of the cycle as well as 2004 operating margin estimates versus 2000 (IBES mean estimates).

First, sales. One would expect sales down sharply. Yet 2004 sales on average grew 28% ! Of course, it varies according to vendors : Nokia sales dropped 6% but Qualcomm grew its revenues by 53%.
Second, profitability. Another surprise : profitability is back to the 2000 level, at 22.5%.
Third, financial health. The 8 US companies grew their net cash by 133%. Canon and Nokia increased their net cash by a factor of 4. The ratio Free Cash Flow to Sales is expected to grow from 17% in 2000 to 21.5% in 2004.


Then how do we explain such a a discrepancy between the tech stock krach and fundamentals rather healty We think there are two answers. Valuation were way too high in 2000. Trust in the financial markets, in corporate governance was greatly shaken by the Enron, Worldcom, Parmalat to name a few scandals. Those two factors are now hopefully behind us. Once investors come to look at these numbers, the strong current negative bias toward Information Technology should fade away.

| 2004-12-01 |
Internet is the new technology platform
IBM is probably the first to invent the concept of technology platform. When releasing the Serie 360, IBM revolutionised the mainframe market by announcing an architecture, not just a product. Series 360 was a framework of mainframes upwardly compatible. Soon, a whole new ecosystem developed with partners adding value on top of the IBM products. IBM was the big winner.

The most recent, extraordinary successful, platform is Microsoft Windows. The more applications running on Windows, the more users. The more users the more applications. The richer Microsoft.

But the game is changing. All new platforms are on the Internet. Ebay created a thriving ecosystem where multiple parters developed applications which suit very specific needs. Ebay loves it. Amazon.com uses so-called Web services technology to let anyone willing to open an online shopping site leveraging Amazon.com infrastructure at near-zero cost. Google has development kits for Web designers which help them build without any development a search engine they can use for their own site. If the search engine does not find the right information on the site, Internet users can of course switch to the Internet thanks to Google.

When two technology platforms vie for the same customer needs, a war is close. A war with always only one winner. Recently, Google released a search plug-in on Internet Explorer which helps consumers search for information residing on their PCs … and Internet. This competes directly with Microsoft vision of ‘information at your fingertips’. If people start to use Google to organise their content, Windows value is greatly diminished. A war between two giants has just started …

| 2004-11-15 |
Smart cards pass the 2 billion mark in 2004
Memory smart cards (like prepaid phone cards) do not grow much anymore but microprocessor-based smart cards keep growing steadily and lead the market with a lot of different end markets. One now find microprocessor cards in GSM SIM cards but also in membership programs, banking credit cards, identity cards and passports, health cards, transportation, paid-TV, access badges, …

This drives a strong demand for semiconductor, related readers, software, networking and storage. An interesting example of how Information Technology enters in our everyday’s life.

| 2004-11-10 |
Cisco ships more than 2 million IP phones on a run-rate basis
This is a good example of how IP telephony has become mainstream for both corporations and telcos. Cisco, even if selling only pure IP PBXs, has already entered in the top 4 PBX vendor market, a market with strong barriers to entry and dominated by Alcatel, Lucent, Nortel and Siemens. So these four have now to share their market with Cisco. Actually, Cisco could well end up becoming the leader.

| 2004-11-01 |
Handset mass-customisation
Mobile telephony huge success in the GSM world has helped Nokia to emerge as the handset dominant vendor. Nokia was once close to 40% market share. Nokia success comes not only from a strong ability to anticipate market needs, from having one of the best global brands but also from an unmatched ability to manage its supply chain. Nokia is probably as good as Dell here.

Cellular Operators have since raised objections to a world dominated by an equipment vendor, a supplier which made the rules. Cellcos now need to differentiate themselves and the handset is a key differentiation piece. The vibrant success of Japan mobile market where cellcos dominate weaker suppliers has inspired this change in strategy. The market is segmenting into different ecosystems. There is Vodafone Live !, NTT DoComo’s iMode adopted by Eplus, KPN, Bouygues Telecom and Telefonica Moviles. Cellcos often now have exclusive handset offerings.

Yet, cellcos still need solid and profitable handset vendors which can finance a strong R&D to design new and innovative handsets which will drive more usage and traffic. For this reason, we think that the handset market will morph into a set of strong leaders which will be able to mass-customise handsets for their cellco customers. The retail world works exactly this way. Nokia was first in denial mode but is showing now signs that they got the message. They are likely to belong to this club. Samsung Electronics and Motorola should be able to join the club as well. Local small vendors, like Sagem in France or Sendo in the UK, will have more trouble lacking scale. They risk being relegated into niche markets. This trend will be very interesting to watch.

| 2004-10-15 |
There are no more killer applications ? Think twice …
Not so long ago, the MP3 reader market looked like becoming a mature market. Then came Apple which reinvented this market with the hard disk drive based iPod which features a very well designed synchronisation software as well as an easy way to download paid-for digital tunes. The iPod has fast become one of the most desired consumer product. During its last quarter, ending September 25, Apple sold no less than 5 million iPod, up 500% year-on-year.

If you believe that there are no more killer applications, think twice. Nobody ever predicted that there would be such a market for MP3 readers in the $250-500 price range nor that people would be willing to pay for downloading music online. The iPod story is here to remind us that we will see a lot of new killer applications, which have yet to be invented.