| To: Alden Pratt who wrote (233) | 6/12/1996 12:29:00 PM | | From: Carlson | of 5854 | | |
Summer Lag in TEch Stocks?
The summer lag in tech stocks may be mostly psychological.
Years ago the US semi industry was prdominated by domestic sales and not much of that was for consumer electronics. Businesss slowed down for vacations and because demand tapered off. Many US electronics firms shut doen plants for a planned vacation. This allowed them to make some plant adjustments while production/processes were off-line. Noe the market for semis is much more global and diversified. Consumer PC and other domestically produced products run counter to a summer slowdown. US comapnies are competitive due to a lower dollar, more competitive products, leaner companies, and increased automation. As one industry executive told me recently; There is little incentive to move production of complex products overseas - with labor content down to 20% of what it once was due to automated assembly, lower wages is much less of a factor. We can produce as cheaply in the US as we can in Taiwan.
The summer lag perpetuates itself because of; 1] If winter and spring follow a typical boom pattern, then the industry pulls back as a normal flex in the supply/demand cycle. We have had a contracting winter and spring so the cycle is reversed from the "normal" cycle. 2] Analysts are creatures of habit. They look at five and ten year charts and say that a slow down is upon us. They said it last year and were wrong. They have been increasingly wrong about this over the years, but as a group have been slow to change their thinking. 3] The high tech investor "vacation factor" (my theory); High tech investors are more typically yupie types who are not as conservative as some investors. They also have active persoanl and family lives. They think about things other than investments during the summer and take vactions, spend money on vacations, cars boats, and other "toys". Analysts and brokers also can be put into the class of people who think more about spending than investing in the summer, They aren't pushing stocks because they are pushing golf carts around the greens. Tech stocks often go down in the summer because the buyers have dried up (check what volumes have done in summer months).
I think that the bad news of price declines and inventory gluts are largely behind us. A number of major new product cycles will help accelerate sales going into the Fall at the same time we are coming off the bottom of the down-turn. INfra-structure builds in telcom, Windows NT rollout, 3-D graphics/Intel P55-C rollouts, and a host of new products that are partially propelled by the very low priced memories that anguish the industry today will make the rest of '96 surprisingly good to semi, telcom, and other electronics investors. |
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