JB:
I'm certain that there are far better qualified posters than I who could provide a better response to your questions, and I'm also certain that you would find their comments, both pro and con, to be of value. That said, I'll get things rolling on this topic.
My pessimism is directed towards the entire semi/PC sector. From my perspective, it remains massively over-valued and over-owned, in spite of the 25-30% smacks that many have already absorbed. As noted earlier, my stance is based on a simple supply-overwhelms-demand basis, which has been my posted perspective for many months. Normally the market discounts many months into the future, but in this mania period, it has endeavoured to simply ignores bad news (witness MU). As the bad news has continued to pile up, the market has been forced to finally face the music, but the real damage won't commence until the "buy-the-dippers" take some more wounds. From my perspective, a technology-led crash is both inevitable and near term.
As noted earlier, deflation is the watch word at this station, and I've been posting hard observations as to its progress within the tech sector for a lengthy period of time. Too many fabs, too many PC plants, etc......don't mix well with a saturated demand environment, which I've also chronicled for many months.
Intel has been and remains one of my top three short suggestions. I expect INTC to descend to the thirty dollar range within the next few months. From my perspective, this is now almost inevitable, given INTC's foreboding circumstances. New and nasty competitors are eating their lunch with excellent and less expensive micros, especially AMD's K6, and of late, CYRX's 166 Mhz offerings. The cloners in the field love these chips....plug them in and ship them out.....and they rarely come back. The big guys are also becoming enthusiastic about them (especially CPQ). These chips provide greater profits for all channel participants in comparison with Pentium useage. (although given the speed with which INTC is reducing prices, this could change). INTC also has too much capacity. This is a murderous situation, when the fixed costs are a large percentage of total costs, and they are. Note the new Texas plant that is virtually complete and that will not be commissioned.
The big problem for all is the lack of new, sales driving software applications. INTC, being a primary hardware supplier, takes it in the chin when there is no reason to buy a newer , faster PC.
INTC spent a bundle on MMX and it sold poorly. I personally could never see any compelling reason why anyone would buy it, and as it turns out, few did. The company then compounded the problem by spending another bundle on the P II and it too has bombed, as few see a need for the extra speed. The PII won't sell well until the price is reduced dramatically, and this provides an obvious disaster for Intel.
INTC ownership has already cost some funds their year end bonuses, and the chart is getting ugly.....not that I think charts are terribly important, but they can perform the function of additional nails in a rapidly closing coffin lid. INTC's expenses are going up,not down, in spite of reduced market share and falling sales growth.....not conducive to happy quarterly reports, the next of which we expect very confidently to be a real "clanger"
A year ago, INTC was a monopoly, this year, it is far from same. Last year, 4 brand new Japanese manufacturing pipelines needed to be filled, and those Japanese clients were filled with misplaced enthusiasm and confidence vis-a-vis their Pentium orders. This year, some of those new Japanese clients are actually vacating the field (by way of example, Toshiba just dropped out of the consumer desk-top market), and their orders are much reduced. BTO has also added to INTC's woes, creating a reduced need, at exactly the wrong time. Last year, PC demand growth ,was just starting to slide, today it is a well established trend. Last year, Asia was every PC builders growth dream.....this year, it is proving to be a very different situation.
I could go on and on....suffice to say that it is a very different and much uglier world when viewed from INTC's headquarters
In its recent quarterly release, MU spelled out in very clear detail where it is heading. One would have to be a dedicated bull indeed to ignore this truly distasteful set of numbers. Bless all those N,Y. analysts, who have been quietly pulling the estimates down from the $.33 range at the beginning of the quarter to a final $.09 , only to be provide with $.04. Anything other than a perfunctory glance at these numbers also reveals that a more forthright report would have come in at a substantial loss, although this is of no consequence in any event, as the current quarter will provide a loss that will get everybody's attention. Fortunately, the stock is quite liquid and can be borrowed without difficulty.
Will MU go out of business? I don't know, nor is it important. They still have lots of cash, but the cash needs are massive if they wish to stay in the game. I personally suspect that the company will merely slowly evaporate, but most of the shorts will have long since moved on to other targets with excellent profits before this occurs. The stock price momentum is now very strong and very negative, and again the chart is a classic H and S pattern that has already attracted the technical types for the final feast. The current action is strictly a rearguard effort. Single digits is a given, and provides an appropriate exit point for the shorts.
Boy, I really got wound up on this one......probably because it's finally beginning to be fun again.
Best, Earlie
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