When Moore Meets Metcalfe

George Gilder
Forbes
April 30, 2008
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"Profits go to the supplier of the missing element that completes a system."--Peter Drucker

For investors who know that human-caused global warming is hokum, as proved by the new book The Deniers by Lawrence Solomon, this is a supreme moment of contrarian upside promise.

Solomon shows that hundreds of the most prestigious and knowledgeable scientists in the field, from paramount physicist Freeman Dyson to venerable climatologist Reid Bryson, are debunking the climate catastrophists. But a clueless U.S. venture capital community keeps on throwing their investors' money at futile chimeras based on the idea of a climate crisis.

Even Silicon Valley paragons such as Vinod Khosla, John Doerr and the Google boys are promoting potted plant investments to suck up CO2 and angling for sunbeam subsidies from Washington. Going so far as to hire Laureate Lobbyist Al Gore, Kleiner-Perkins--once the pantheon of venture capital--has become a florid greenhouse full of climate cranks and weather bores.

Meanwhile, behind their backs, the world is cool and the Internet economy is heating up.

The "exaflood" is at hand, with torrents of high definition and three-dimensional video and Web-based services that will inundate public networks. Ultimately demanded will be hundreds of billions of dollars of new investment over the next five years paid for by trillions of dollars in new economic upside.

All current computer and networking systems suffer from missing elements that could enable the integration of electronic logic and memory with ever accelerating photonic and wireless communications.

Moore's Law is facing a fiber speed challenge and a mobile power crunch. Not only must chips operate hundreds of times faster but they must also consume radically less power. Resolving these issues offers the path to huge Druckerian profits over the next decade.

Filling the gap between Moore's Law and fiber speed and Moore's Law and mobile speed per watt are architectural innovations in both networks and systems. These advances enable faster electronic systems that can be integrated with fiber speed and wireless networks.

These advances also provide investment opportunities that span the industry's supply chain from semiconductor wafer fabrication to microprocessor design to optoelectronic devices to network architectures to new computer and handset input-output. All supply currently missing elements to complete the prevailing system of information processing and communications.

Although venture capitalists are mostly out-to-lunch or taking a tan, SemEquip of North Billerica, Mass., has launched a new ion implantation system that addresses the mobile power challenge. It reduces transistor leakage by up to a hundred fold while enhancing transistor performance by some 30%. Virtually every semiconductor company in the world is going to have to use their machines for the next generation chips.

Meanwhile, Luxtera in Carlsbad, Calif., has invented and massively patented an entirely new way to integrate optics with electronics to meet the fiber speed challenge. It will establish a new standard for the industry. Azul Systems in Santa Clara has broken through with radical new datacenter processors that operate at terabits per second using operating-system-neutral upgraded Java machines. In Los Angeles, Jules Urbach of Jules World has launched spectacular new real time graphics engines that outperform existing technology by a factor of thousands.

At the same time, huge opportunities are opening up in the public markets, which have collapsed under the strain of the loony-bin politicians supported by the venture capitalists. According to the media, most scientists believe in climate change, and politicians believe in protectionism, high tax rates and rearview mirror pollsters, while economists imagine that the U.S. is falling behind the world in technology and enterprise.

This widespread dementia in high places offers a huge contrarian opportunity. All that has happened is that the dollar sunk, meaning that relative U.S. output and market capitalization diminished. But the U.S. economy continues to thrive, spearheaded by world leading information technology companies, from Apple and Cisco to Google, Qualcomm and Intel.

In my public investments, however, I focus on smaller companies that supply critical path elements that complete the systems pioneered by these leviathan leaders. For the Apple, Qualcomm and wireless worlds, I invest in Synaptics and Anadigics; for Cisco in EZchip and Netlogic, for Google through datacenter leaders such as Equinix, and in the Intel wafer fabrication world through such companies as Semitool. All of these companies will be presenting at our Gilder-Forbes Telecosm Conference in late May.

Creativity continues to flourish in the realms of fiber speed communications and wireless technology, but venture capitalists are falling for the fallacious argument that they can gain huge profits by investing in government subsidized energy plays. Reliable rule: If the government likes it, it is a distraction for serious investors. Venture capitalists imagine that energy technology is subject to Moore's Law, doubling its capabilities every 18 months. But converting sunbeams to electrons has nothing in common with miniaturizing circuitry for low power computing and communications.

Virtually all the power in the atom is in the nucleus. Nuclear fission is the only power solution that accords with physical law. Environmental concerns dictate using power from below the surface of the earth (uranium and fossil fuels) rather than wasting the scarce resource of the earth's arable surface with dilute sources of solar power.

This is a fact of life and an imperative of intelligent venture capital. CO2 is a foundation of all life. Choose life.

Meanwhile, the very last thing we should worry about is the weather, which still offers wonderful spring skiing at resorts across the country and will foster an efflorescence of flowers for Telecosm in late May at Lake George, where we will vigorously debate these intriguing subjects.

This cornucopian investment scene will be fully explored at the Gilder-Forbes Telecosm conference, from May 27-29 at the Sagamore Resort in Bolton's Landing, N.Y.