Jacob, Thanks for the very interesting, organized, and detailed reply. There is one thing I don't follow though, why do these patterns have to repeat to such an extent? One of my favorite articles, which I have mentioned here before is titled "The Trouble With Humans". In it the author argues that our incredible pattern recognition skills hinder our success in the financial markets. The author argues that markets work in ways that are much more complicated and random than we think.
I am not saying you are wrong, and I should point out that your track record here on this thread is simply outstanding, ever since I started reading your posts at least. But perhaps some of these past patterns were partly coincidence. As one example, the PC was one of those "changes everything" type events. Most early PC companies are no longer around, but the Nasdaq went on to impressive gains. There were some hiccups along the way, but nothing like we have experienced in the last two years. My history on that period is a bit lacking, but I do not believe those stages occurred for the PC.
Moore's law has been one of the most important and consistent patterns in technology, and this is one that I think is likely to repeat for a while. The way I see it, there has been a steady growth of applications for the microprocessor, and I don't see that changing just because everyone got overly enthusiastic about the internet, bid up stock prices too high, and overbuilt in the telecom area. I think what is happening right now is sort of like a river changing paths temporarily after encountering resistance. The resistance is the 56K modem brick wall that we hit a few years ago. The river is going around it, and lately the growth has been in consumer items, like games (Xbox, for example) and consumer items such as digital cameras, etc. I think this brick wall is coming down, and there will be a big opening in bandwidth. That, I think will drive new applications and will drive the entire tech sector. I guess I don't see how the railroad analogy applies that well. When you build a railroad and put a train on it, you get a quantum leap in transportation, but in order to get another one, you need to build another railroad line, which is a very slow and tedious process. In technology we have laid fiber optic lines that are capable of an absolutely incredible amount of data transfer (many along railroad lines in fact), that will take years and years to make use of. We can ramp up very easily without laying new cable just buy changing the chips and equipment that send and receive the light signals. Moore's law is the same type of thing, incredible increases in performance vs the more linear type of increase that each railroad line provided. Railroads today are pretty much the same as they were 100 years ago. A chip from just two years ago is only half as fast as a new one. That is a big difference I think.
I respect your point of view, but I hope you are not correct about all the pain that must occur going forward. I think it is very hard to predict these downturns and how long they will last, but I agree that when everyone agrees on something it is likely to be wrong. I recall the book from the late 80's "How to Survive the Great Depression of 1990", or something like that. In retrospect, that was a great contrary indicator, given the market perfomance that was to follow. The public at large is much less enthusiastic about tech stocks then they were a couple of years ago, I don't know whether this sentiment has hit bottom yet, but I hope, as you apparently do, that it was this past fall.
Regarding survivors, I will give a few, but I should point out that I am more of a novice than most on this thread here.
I think a survivor needs good management, and either a lot of cash, or needs to somehow escape the red ink that is happening to most tech companies at this time. The best scenario of course is to maintain positive earnings and have lots of cash for acquisitions and so forth. Here is my list: AMAT (at the core of the tech sector, very well managed, cash, experience, etc), TXN (well managed, cash, sort of like the Intel of DSPs), CSCO (the gorilla in networking - I agree now), JDSU (enough cash and size to survive I think), GLW (less sure, but I think this one will survive also, and will have almost a monopoly position in fiber when fiber demand returns due to last mile, metro, foreign sales, plus some long haul), AMCC (lots of cash - more per employee than MSFT has, smart management, I think they will help push those photons down the fiber once our last mile problem is solved), SNDK (a real lot of cash, 50% insider owned, will benefit from the inevitable growth in flash memory cards), NEWP (plenty of cash, earnings, will survive if they don't get bought out, will benefit when companies try to catch up with technology as the downturn is ending), INTC (cash, earnings, dominance, etc.). I hope the programmable logic survivors will survive, but I don't understand that technology very well. I own ALTR.
I wonder what you or others here think of AMCC at these prices. I think long term the communication chip business will be a good one. If this wireless broadband thing takes off, maybe BRCM will not do as well (cable modem chips). AMCC should get orders in relation to increases in long haul traffic, once inventories are used up. This communication chip business must be a good one long term, otherwise INTC would not have moved into this space. And somebody needs to make the chips to go in Cisco's boxes.
I wrote this reply somewhat quickly, hopefully my thoughts are coherent.
John |
