Hi Ken, Your points are interesting, but I don't read the situation as you do. I must emphasize that "reading" is guessing (but this is no game for me and many others whose livelihood depends on the semi business).
As to the fund managers needing to show results every quarter I can not agree that the situation is that simple. Small funds can play the momentum game to some extent, I'll grant you that. But I can't see how the bigger funds could possibly wait to establish large positions until a turnaround occurs. They have to buy when a bottom is forming or when the stock isn't moving (and the business picture is good enough that the stock should move up within 3-6 months or so). Otherwise they would constantly be chasing stocks and distorting the prices.
So they actually MUST buy near the bottom and wait for the turnaround, at least with a partial position. However, if the turnaround looks to be at least 6 months away (and beyond that you never know how long or if the turnaround will occur), they aren't going to establish much of a position - they may completely exit in some cases. This means that they can't really try to time the market, at least not in the sense of suddenly buying or selling in massive quantities. The drastic volume changes would generate volatility more like that of the futures markets. (Speculators only need apply <G>).
I agree that AMAT is not going to disappear. However, until the semiconductor business shows some meaningful signs of a turnaround coming in less than six months (and I don't see it), there will still be another big lag before the semi equipment business turns around - this is because the existing capacity needs to fill before more fabs and upgrades will start again.
What would I look for? I suspect that DRAM prices need to be stable and margin shrinkage in other semi business must stop. Unfortunately, my understanding of the current conditions is along the arguments stated by Michael Burke - too much capacity coming on line, not enough growth to fill the fabs, negative margins in DRAM will force companies out of DRAM into other markets to survive, etc. I think that someone will be forced out of business before this is over. That may be the signal of the bottom - and I don't see that happening this year.
My guess is that AMAT's business won't turn around until all this occurs - sometimes in late 1997 is my guess. If it's any worse than that, then many of us will be lucky to have jobs by Christmas '97 - at least in this business.
That's my current feelings about the business, and why I finally sold my AMAT (at a substantial loss). I thought we had a bottom earlier this year, but the market is telling us that we have been too optimistic. That just doesn't happen just before everything gets better. When the threads are all doom and gloom - or have just dried up - then we've hit bottom. Right now I think that most people think that a turnaround is just around the corner, i.e., still too much optimism.
As to your success with MSFT and INTC, I believe we are now in a much different market, so the analogy will fail to produce the desired results (profitable investment).
In spite of that AMAT may still be a good buy for the long term in the high teens. I'm not predicting single digit prices for AMAT, but that's a guess, too. (The stock has already gone through such a bear market already.) They aren't going to disappear IMO, but the next year is very questionable, profit-wise. If you have a long horizon, holding some stock makes sense, but I personally feel that all the semi equipment companies can be bought at lower prices at sometime in the next year, so I would hold on to a large cash position.
Ed Miller |
