I think much of your view is slightly askew but very understandable at this point in time. You say: This entire sector is not simply an ongoing disaster - obliterating every 'rule' of cyclicity so many of us loved to cite - but it is my impression this may be something close to a permanent state of affairs.
Permanent? I highly doubt it unless you have a crystal ball. I will grant you that right now, everyone sees "sluggish growth for a long time" at this stage of the cycle.
When times are tough, we too often hear or read: "it's different this time". You seem to be saying this. I disagree, unless you are pointing out that every cycle is different from the previous in the amount of time (frequency) it takes and the degree of rise, fall and rise (amplitude). It's the changes in frequency, as well as those in the amplitude, which define each cycle's pattern. Since the pattern changes with each cycle, it's always extremely difficult to predict the characteristics and dynamics of the next period and especially so at the low point of the current bust process.
The sector's woes are classical supply and demand type problems, which are all part of the technology cycle. Demand is down, therefore we have an overhead of supply. This equation always works itself out as expansion will slow or stop until the point were the demand side kicks in and eventually takes over, creating the foundation for a new boom bust cycle. We can see these same issues at work in so many other industries and markets at this point in time. The economic woes and the nature of the boom bust cycle is not isolated to the semi cap equip sector. You take exception with the fact that AMAT has a high P/S ratio and I'm sure this is because in previous bust cycles this ratio has fallen far below current levels. I would suggest that it is possible that the current strength in AMAT's stock is because AMAT's dynamic has evolved from we've seen in the past. Their relative strength within the industry is more than mere perception as it can be seen directly when one compares AMAT's financial performance to other companies within the sector. I would say look at how they've performed during the downturn and look at their future prospects relative to the rest of the sector. IMO, their ability to execute justifies a premium. You say 4xsales it too high. Maybe so. We'll only know in a few years when we look backwards.
Seperately, and not to change the subject, I disagree with you that people don't need more horsepower in their PCs. Video is just starting to reach into PC world, barely scratching the surface at this stage. Audio is much farther along but it too hasn't reached critical mass, imo. The ability download, process and manipulate A/V material is very demanding on a processor. These themes are merging with the tradition PC playing field of business applications and web browsing. Add in IP telephony and there will be ever increasing demands on the processor. Are the PCs created these days taking full advantage of the imbedded horsepower? Probably not, but on the horizon there is always an application waiting to spring forth from the next generation of microprocessors. |
