Tech Connections Pay Off For Silicon Valley Firm

Kevin Landis is generating top-tier returns by investing 40 percent of his Firsthand Technology Value Fund in companies within an hour's drive of his hometown, Cupertino, Calif.

His biggest holdings include Netflix Inc. of Los Gatos, Calif., and Cypress Semiconductor Corp., seven miles from his office in San Jose. Landis gets ideas from talking with local engineers, lawyers and friends. One chat led him to Intevac Inc., which helped his fund rise 52 percent in the past year.

"That's a great, innovative little company," said Landis, who started Firsthand Capital Management Inc. 12 years ago and now oversees almost $1 billion. "You learn a thing or two in day-to-day life by interacting with people."

His $447 million mutual fund is the second-best performer of 75 technology funds tracked by Bloomberg over the past 12 months. The Columbia Technology Fund, led by Wayne Collette, is No. 1, up 64 percent. Landis's fund is rising after losing value in four of the past six years, including a 56 percent drop in 2002 when the Nasdaq Composite index declined 32 percent. The fund fell at an annual rate of 6.9 percent since April 2001.

"Collectively, we overestimated demand for products and services," Landis said. "There was nothing wrong with the technology."

Landis takes more risks than competing money managers, said Morningstar Inc. analyst Arijit Dutta. The average market value of companies he holds is $3.2 billion, compared with the $13.8 billion average for rival tech funds. Shares of smaller companies tend to be more erratic than those of their large-company peers, he said.

"When things aren't going well for tech, the fund is capable of suffering big losses," Dutta said in an interview from his office in Chicago.

Firsthand's largest holdings, Netflix and Corning Inc., are rallying on optimism that consumers will spend more on living-room entertainment, Landis said. Netflix runs the largest mail-order movie-rental service, and Corning is the No. 1 maker of liquid-crystal displays.

"The key is to get big-picture trends to begin with, and then figure out what companies will do well within that," Landis said.

Landis, 45, grew up near companies including computer-maker Hewlett-Packard Co. in Palo Alto, Calif., and chipmaker Intel Corp. in Santa Clara, Calif. It helped shape his interest in computers. He attended the University of California at Berkeley, received a master's in business administration from Santa Clara University and now lives in San Jose, home to Cisco Systems Inc. and eBay Inc.

The shares of Intevac, which makes gear to produce hard disks, doubled this year, increasing the company's market value to $557 million. Chief executive Kevin Fairbairn returned the firm to profitability in 2005 after two years of losses. Intevac's first-quarter sales more than quadrupled to $49.6 million as customers including Seagate Technology LLC bought more equipment. Net income was $7 million, compared with a loss of $3.9 million a year earlier.

Netflix accounts for 7.4 percent of the fund's assets. The shares more than doubled in the past year. First-quarter sales jumped 47 percent to $224.1 million on a record 687,000 new subscribers, the company said April 24.

"Netflix is likely to be the place you go to to get movies for a really long time," Landis said.

The shares of Cypress Semiconductor, Landis's third-largest holding, are up 45 percent in the past year. Corning doubled in value and makes up 6.8 percent of the fund. First-quarter sales at the Corning, N.Y.-based company jumped 20 percent to $1.26 billion, as consumers snapped up more flat-panel televisions using Corning's glass.

"There are more high-tech big-screen TVs not just in the U.S. and Japan, but they're shipping a lot to India and China," Landis said. "They've done a great job at addressing the global market."

Landis recognizes that while Silicon Valley may be the heart of the U.S. tech industry, the biggest potential is in Asia. He made two trips to China and one each to India, Japan and South Korea in the past year to analyze the markets. He owns shares of Semiconductor Manufacturing International Corp., China's biggest chipmaker.

"It's time to watch the tech industry get really international," Landis said.

With reporting from Demetrios Pasigos.