| To: Jacob Snyder who wrote (60902) | 2/23/2002 2:30:55 AM | | From: Cary Salsberg | | | | I believe the "telecom/internet sector, including their equip suppliers" are the key drivers for most of the semi and therefore semi-equip companies. I agree it is not a "market call", but it sounds like a technology call.
I tend to disagree with your opinions. The current market dip has been driven by telecom disappointment and belief that the time frame for both inventory correction and the beginning of secular growth is being pushed out. The sector is pretty close to 2001 lows and some of the comm IC semis have retraced most of the gain since the lows. I have already seen semi improvements attributed to inventory "snapback" and concern voiced that they may not be sustainable. I realize that technically the stocks should move up, but I have not seen strong sentiment that we are retreating from a bear market rally. I think the real danger to prices is in the next 6 months to a year when the recovery will look very uncertain and visibility will dim. A few years out, technological innovation will overcome financial problems and these stock will make significant moves higher. Inventory problems will be a thing of the past and a new secular upturn driven by new technology parameters will have begun.
I am beginning to be afraid that this down move will not end until the quality, dare I say it, AMAT, ASML, KLAC, NVLS, ALTR, XLNX, LLTC, MXIM, joins the crowd and starts looking scary to the downside. If that happens, I will try to get fully invested for the long term. |
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| To: Jacob Snyder who wrote (60898) | 2/23/2002 9:54:16 AM | | From: orkrious | | | | IMO, the Fed has done little to decrease the excesses of the Bubble. By contrast, they have aggressively lowered rates and increased liquidity, to avoid a (worse) downturn.
Fleck certainly agrees with you. Read the latest Rap.
grantsinvestor.com |
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| To: Cary Salsberg who wrote (60913) | 2/23/2002 9:58:06 AM | | From: orkrious | | | | am beginning to be afraid that this down move will not end until the quality, dare I say it, AMAT, ASML, KLAC, NVLS, ALTR, XLNX, LLTC, MXIM, joins the crowd and starts looking scary to the downside
Cary, you are absolutely right. In fact, instead of being "richly" valued, these stocks will become richly undervalued, considerably below their Sept lows. Then it will be time to back up the truck for another rally.
ork |
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| To: orkrious who wrote (60915) | 2/23/2002 11:32:53 AM | | From: Lone Star | | | | | Yes, but will that happen? As someone who likes to buy the amat's of the world at a good value, then hold for 5+ years I have waited patiently for this sector to wind down, but so far... |
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| To: Lone Star who wrote (60916) | 2/23/2002 11:45:53 AM | | From: orkrious | | | | Yes, but will that happen?
Bear markets take every stock down, it just takes longer for some than others. The semi equips are some of the last still standing. My guess is their decent will be rapid. |
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| To: orkrious who wrote (60915) | 2/23/2002 12:37:45 PM | | From: Cary Salsberg | | | | I stongly disagree that these will become "richly undervalued" or "below their Sept lows."
I think "scary" will still stop above Sept lows and that will not be even undervalued, certainly not "richly."
We have the proverbial greed/fear equation here. There are very few quality companies and these are the best. They are not immune to huge problems in the technology industry, but they will not suffer as much and will lead and prosper greatly from any recovery. I believe that the market has recognized their quality by their high valuations. Quality always breaks down last to levels above the "bargains" reached by most, leads the upturn, and outperforms most others over time.
If you didn't back up the truck at the bottom last Sept, you will get another chance at higher prices. ALTR and XLNX have been and are the most vulnerable because they are the most directly related to comm fortunes. |
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| To: Jacob Snyder who wrote (60919) | 2/23/2002 4:38:02 PM | | From: Cary Salsberg | | | | It was a little sobering. It supports my basic view of risk which has me placing only 12% of net assets and 22% of liquid assets into my brokerage accounts. (Numbers have been raised recently from 9% and 16%)
The new money coming in raises me from ~19% to ~37% cash. I am supposed to come up with a plan to commit this cash to my favorite 8 this weekend. |
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| To: John Trader who wrote (60691) | 2/24/2002 7:16:05 AM | | From: techreports | | | | 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.
Which could explain why we didn't really see inflation. We are a knowledge/service based economy. In the past, as we became more wealthy, we bought more. The things we bought required steel, wood, ect..
Supply and demand and demand was out striping supply and prices went up. If that's the case, I don't think inflation is bad. Let prices go up! It's natural. If a price of a car goes up 30% because parts cost more because of more demand, then consumers should wait till prices drop or companies find new source of material. Selling more bandwidth or software or processor does not really cost a whole heck of a lot more. Some people fear deflation. Deflation is not bad if companies are finding new ways to cut costs and pass those saving on to consumers. This creates wealth and is very good for the economy.
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.
Pretty amazing what has happen with tech stocks from the early 90s to the late 90s. In the early 90s, investors thought tech was too risky. It was not worth investing. Companies like Dell, growing through the roof, traded at a PE of 10! Microsoft was growing EPS at 35% a year and traded at a PE of 30. From 1988 and to 1992, Intel's stock was essentially flat. Yet revenues went from 1.9 billion to 5 billion.
finance.yahoo.com
In 1993, Intel traded at a P/S ratio was 2.96 and the P/E ratio was 11.7. Wow! 11.7 for Intel? A company with great margins, huge potential, and growing ESP at an alarming rate! At the time (in 1993), Intel's competitive advantages maybe have been in question, but I'd be willing to take that risk considering the P/E is 11.7 Then again, that's all relative. If people were offering to give you $5 in exchange for $20 you'd think they were crazy. But if someone offered you $5 in exchange for $10 would you then consider that a deal? Probably not. Today, I'd consider a company like Intel with their fundamentals and potential trading at a PE of 12 crazy. Earnings drive stock prices, and Intel grew them 22% for over 15 years!
Tech was pretty new in the 80s. After the crash (87), I'm guessing people just said forget it. I, personally, will never say forget it to technology. I've seen what technology has done in the past. This may not be a Buffett type industry, but technology is not a terrible industry.
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.
AMAT has a pretty high price-to-sales multiple. Historically, their PS was below 3. Today it's at 5.93?
quicken.com
TI is the gorilla in DSP, but will DSP or CPU win? Will CPU take on more DSP functions or will DSP take on more CPU funcations? Could both technologies merge. I think TI is headed into a deul with Intel.
Cisco is the kind/gorilla in the enterprise, but in the carrier market, they've done pretty poor. Nortel and Lucent still have strong connections there. We'll see. I don't think Nortel will disappear. One of the biggest companies in Canada. Would the US let MSFT or GE go bankrupt? As for GLW. They trade at a low sales multiple. I like that. They will dominate this market no doubt. Lucent, the one major competitor has gotten out, correct? Still, I don't like the fundamentals of this sector. Remember, we are only using 5% of the fiber in the ground. Carriers will have to light that before they go calling Corning again. Granted, they'll start calling GLW before they light 100% of their fiber. Wasn't Corning trying to get into the optical components industry? If JDSU was at like $2 i'd be interested. I want to see them trade at cash. I also think they'll have a pretty strong lock on this their market. I know many people feel that there is not enough capitulation, but JDSU is getting almost down right cheap. At $3, about 33% of the market cap would be in cash. Even now (at $4.98), 21.88% of the company is in cash. God, when you think of it this way, JDSU looks down right cheap. Now that they've fallen under $5 and every thing sounds so bleak, I think we may see lower prices (will mutual funds unload now that's it is under $5)? I would love to buy at $2 or $3. Heck, $1 would be great. I am getting real excited if you guys can't tell and my original purchase of JDSU shares was over $55! Ahah. Man, i wouldn't be surprised if JDSU starts buying shares. Management has to see that they have over 22% in cash and stock? Don't get me wrong, telecom does not look pretty. I think CapEx will be cut even more. JDSU says sales will fall another 10 to 15% next quarter. Things may look ugly for another 12 months.
no thoughts on sndk, amcc, or newp.
Not sure with intel. No one really talks about AMD's x86-64 processor, but AMD may have the right strategy. Intel is pushing the industry towards a new standard (Itanuim/IA-64) and I have yet to read reports that the Itanuim is a big success. Maybe people are waiting for the next Itanuim processor, but maybe this is just a flawed strategy? AMD at 1.15 sales and a possible winner with sledgehammer could be interesting. Don't get me wrong, I thought Intel was the gorilla and AMD was a bad investment, but at 1.15X sales you are not taking on that much risk. You have a margin of safety since AMD's mean PS ratio has been 1.224 for the last 10 years and I don't think AMD is going bankrupt. They've been fighting Intel for years. I'll have to research AMD's new processor and weight what the chances are that it will be a success. btw, when i say margin of safety, i don't mean it in the Graham sense, but as a tech investor, I consider the downside pretty limited.
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.
Good to see AMCC's CEO buying lots of shares. Don't really know what AMCC's products do. Where do they fit in? I own BRCM, but I don't know. I don't know if I trust BRCM. So many acquisitions. I have no idea how many options Broadcom issues, but I think management takes advantage of shareholders. That said, it looks like revenues at BRCM have stabilized.
btw, Jacob you are bearish on the baby bells, but I think you underestimate their ability to lobby the government. Debt is high & prices suck. The government might think that the best way to solve this problem is to give the baby bells more power? Not to open up to more competition, which the government knows will make things worse for the baby bells. I mean, why did the government give the cable guys a monopoly? Because they claimed they couldn't make a profit if they didn't have a monopoly, correct? Baby bells could claim the same thing, no? |
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| To: Cary Salsberg who wrote (60918) | 2/24/2002 7:51:57 AM | | From: Lone Star | | | | | Well, BMW's and Mercedes are quality cars, worth their luxury price tags, but that doesn't mean anyone will pay 250K for a 70,000 car just because thats where they are pricing them this week. No one disputes AMAT is a quality company, but business sucks right now, will continue to suck in a very weak upturn when it comes, and is overpriced. |
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