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TWST: Christin, describe the broad communications equipment sector of today and the sectors that you focus on most closely.

Ms. Armacost: We continue to look at the communications equipment market by customer and technology. First, by customer, there are service providers, enterprises and consumers, but the lines between them all continue to blur. Additionally, we look at the market from both a wireline and wireless perspective, segmenting wireline between equipment focused on forwarding packets (electronic) versus equipment focusing on moving light (optical). SG Cowen’s equipment team, of which there are three of us, cover these sectors.

TWST: Christin, which stocks in this group met your expectations or perhaps disappointed investors in the last 12 months?

Ms. Armacost: In 1999, we saw a dramatic multiple expansion as the favorable equity markets fueled a broad-based spending spree for networking equipment. While expectations set in 1999 were generally met and exceeded in 2000, the growth was not sustainable given the Fed’s strong push to slow the economy. We continue to believe data networking equipment is a major driver of productivity and are bullish on our space. The valuation contraction in the second half of 2000 has been quite painful, but I think over the long term, beneficial. While companies were priced in 1999 and 2000 for perfection, we believe our companies today are pricing in a pretty bleak outlook. That makes us more positive about next year, since we believe 2001 will be somewhere in the middle.

TWST: What kind of spending do you anticipate the customers will do? Christin, wireless Internet is an exciting new frontier, requiring vast sums be spent on equipment. Will it be spent?

Ms. Armacost: We expect to see continued spending from both enterprise and service provider customers, with one of the most exciting - and expensive - opportunities being the transition to 3G wireless. While wireless and wireline infrastructure has historically been pretty separate, migration to the wireless Internet will blur the distinction. The infrastructure opportunity, which is estimated to be tens of billions of dollars, will force service providers to raise additional capital and require our companies to help fund the process. For example, Nortel says that their vendor financing activity is going to increase to about $2 billion by 2001. Then there is another $1 billion expected in vendor financing with the rollout of the 3G networks. I think it's going to be very interesting to watch. So from our perspective, dollars will continue to get spent. However, service providers and vendors alike may have to be more selective. That's why I think we've seen many of the carriers restructuring and breaking up in order to maximize investment opportunities.

TWST: How do you rate Nortel (NYSE:NT)?

Ms. Armacost: We rate it a Buy, having lowered the rating after the disappointing September quarter. Fundamentally, Nortel continues to be one of the dominant industry leaders with solid market share; however, we’re a little cautious on the company’s visibility given the shortfall in Q3. We’re watching how the industry shapes up in 2001, how well Nortel delivers against its guidance in Q1, and the impact of potential pricing pressure in the optical market. If Nortel can deliver on its promises, its stock performance should improve. But we’re in a “show me” mode right now. It’s still not cheap.