Companies were over ordering because they wanted to make sure they had enough supply to meet their future needs. When companies have inventories rise several quarters in a row, then it means they've been ordering more than they've been using. Call it hoarding or call it stockpiling. It's still too much product. If there weren't too much product out then there, then why was there a need for the massive writedowns we've seen?
If interest rates were the only or even the main reason that orders stopped, then why aren't we back to 2000 levels now? Interest rates are lower than when Alan Greenspan started to raise them. And why did earnings and revenues go up when interest rates were also rising if the reason for orders going down was interest rates rising? Amcc didn't lower guidance until after the interest rate reductions were already in place. And their first quarter of earnings reductions didn't occur until after three rate reductions.
Granted, interest rates take months to be fully felt up and down, so it could be argued that it took a while for amcc to be affected by rising rates and falling rates are probably just beginning to help. However, lower rates by themselves, do NOT make banks lend more money. They do NOT force anyone with alot of debt on their books already to borrow more or even be able to refinance at attractive rates. If interest rates were helping the economy, why is Congress now looking at corporate tax incentives? There would be no need for that if companies were able and willing to just start buying again.
It's NOT only about supply. The other half of the equation is demand which is NOT only related to interest rates.
It's been several quarters of drought in this sector, so more likely than not, inventories have been worked down, but that still doesn't mean orders are going to fly. The stock acts like that's the case, so maybe they will... I sure have no way to know one way or the other. I can only listen to what David Rickey has to say. And he's not talking until earnings. It certainly wouldn't be the first time the street were fooled by the strength in this company and I still wonder why he was buying stock on the open market, if he didn't see value in the stock.
If the stock flies again today on even higher volume after being downgraded again, then I'll have to wonder if someone knows something about earnings.
Almost all companies low ball guidance. They've done it for years. Despite that fact, in this sector, every time they were lowered this last year, they were still too optimistic. But if you want to think that we're in for blowout earnings and guidance for 125 million in quarterly revenues going forward this time and think the stock will fly to the moon, be my guest.
Btw... I think that analysts will likely be lowering estimates when they should be raising them.... the opposite of what they were doing at the top. Maybe we're there now. I sure hope so.
TA |
