There are only some many companies than can be buying, integrating, and selling this optical stuff. And only so many that are going to use it.
1. New companies are being born regularly. Admittedly, few are attempting to break into the systems integration business.
2. The telco end users appear, in fact, to be diminishing in numbers; and they are certainly diminishing in purchasing power.
Good question you raise then: where the hell is all this stuff ending up?
According to NT, in warehouses!
No laughing matter when there's an inventory build going on. Big guys hoard components in excess of current needs, which creates a mad scramble for the remainder from the little guys. Component prices are great, manufacturers are working overtime, and everybody thinks all is just ducky.
Then the NT's of the world look at their stockpile and quit ordering for a while. Whereupon the component reps try to load up the smaller guys, who, after a while, get wise to what's really going on. And that's when the hiccup hits at the component level of the supply chain.
If you really parse NT's CC, consider:
1. Some of the telecoms have pushed back installation timing. The field engineering shortage is on that end as well.
2. Norty probably (a) both hoarded components when there were shortages; and (b) were caught off guard by the slowdown from the telecos, who had various subsystems in their warehouses.
The thing about big optical systems is that the end-users typically don't have to pay a lot of the bill until the system is installed and tested. So there's probably a fair amount of constipation with everybody's current backlog, as well as some future declines in capex.
BTW, since I'm a temporary long here (Nov. calls for a quicky, I hope), so glad to see the snap-back rally... but Rick's (Diamond H's) admonition is spot on; and in fact the QCOM experience is what led me to identify this as a short candidate in the first place, with the persistent topping behavior in the 210's and the fact that AMCC was vulnerable to a major haircut with FUD at least partially grounded in the fundamentals. The QCOM chart is interesting. In early January, we had a fast crash (similar to this week in AMCC) that took her from $200 to $105, with a snapback to the upper $150's (which made all us longs feel invincible again), then an erosion bouncing around the $125 level (we all knew it would come back - didn't it just rally from $105 to $155?), and it did, back to the high 150's. Turned out to the a classic double top. Then the sh*t really hit the fan to that overdone low of $51.50.
Very expensive lesson to guys like Rick and me. We paid dearly, but we understand a whole lot more about "double tops" than before. And, at least short-term, AMCC formed a double top at around the $215 level.
If history repeats itself, I'm trying to play "snapback" rally #2 (to say $165-$180 here), and then I'm gone, or maybe short again if we cross $200 but stall below the old highs, assuming no changes in the fundamentals.
Too bad SI charting doesn't permit comparative overlays in different time periods. But look at the AMCC for the last 8-9 months and then look at QCOM from April '99 to April '00. (This AMCC week lines up with early Jan. in QCOM). Then look at the rest of QCOM. Pretty spooky, huh? |
