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Dot Com boom was ‘fraud’ or pyramid marketing – HP exec

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A senior Hewlett-Packard executive has accused the financial community of malpractice in taking advantage of the naivety of the IT industry during the dot com boom.

Brice Clarke, director of strategic planning at Hewlett-Packard, said banks and finance houses carry the majority of blame for the recessionary effects of fall out from the collapse of many dot com firms, because they knew their business plans were not workable.

"I believe that many of the dot com phenomena were in fact an example of fraud, or a really good repackaging of pyramid marketing, one of the two," said Clarke. "The people who made out very well were the people that offered the IPOs and that were close to the IPOs initially."

He added: "Those guys were not stupid; they were used to looking at business plans that were real, and could tell a good business plan from a bad business plan. That did not stop them from taking a lot of bad business plans, because they knew they could make a lot of money."

Dean Bubley, technology analyst, equities, at investment bank Granville Baird, said the market lost track of fundamentals during the dot com boom.

"Whilst we had all the IPOs that had very stellar evaluations, quite often the companies only floated a small proportion of their equity," said Bubley. "You then had evaluations that were not based on fundamentals, but on supply and demand, the net results of that is the rapid price appreciation we saw."

The comments came during a debate on the future of Silicon Valley during the NetEvents symposium in Portugal last weekend.

There was widespread agreement among panellists that America, and in particular Silicon Valley, would continue to dominate the IT industry once recovery returns. Firms are more inclined to locate some of their assets outside California and technology hot spots, such as that for mobiles in Scandinavia, but the US continues to be one of the best places to develop businesses.

Granville Baird's Bubley said: "I think that it [Silicon Valley] is probably the first place in the world that really brought together the combination of academia together with financing and the appropriate mind set."

"I think in the short term, possibly technology firms in America will dominate even more. I think that one of the things that is going to happen in terms of venture capital, it is going to gravitate to the real core traditional places for technology. So it will be Silicon Valley again, it will be Boston, it will probably be around London, bits of Scandinavia, France, Germany and Israel."

There wasn't any sense that the terrible events of September 11 or the start of a war against terrorism that might stretch into years will have any long lasting effects on the US economy.

Kevin Mitchell, directing analyst at Infonetics Research, said: "I cannot imagine the US and Silicon Valley in the immediate term losing any of its dominance. The country is so far ahead economically that it will be very difficult when most of the world is looking into a recession at this point." ®

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