ahh, history repeats itself, but this time it's different.
Bulldozer had almost exactly the same reaction yesterday to Osha's downgrade that he did two years ago.
BUT:
In october 1998, PMCS was trading at (pre 2 splits as I recall) around $27 or a little over 20 times 1999 earnings! Osha's downgrade pushed the stock to an intraday low of $21.
PMCS beat numbers the subsequent year by more than 50%.
Today, PMCS is trading at roughly 70 times 2001 estimated eps of $1.70.
Estimates ALREADY anticipate a higher growth rate than pmcs was estimated to do in 1999.
Could they beat 2001 eps by over 50%? I'd say it's much less likely.
here's an important point:
This downgrade has NOTHING to do with manipulation or anything like that, it has everything to do with fear and cowardice.
If the stock collapses from here, osha has "made the safe call." OTOH, if the stock runs up, "Well, we made it clear we LOVE the story long term."
This is a TYPICAL sell side move.
Now, on to his inventory analysis. Could it possibly have any more flaws in it? Using the table in his report, he took average inventory levels from cisco, adct, lucent, nortel, tlabs and various contract manufacturers and combined it with supposed foundry checks and concluded:
Inventory levels are 40% above normal percentages of sales!
Osha makes millions per year to draw a conclusion from this?
Could the inventory be circuit switch gear that's seeing slower build out due to sharp slowing in circuit capex? You bet your butt it could be!
Could it be part of cisco's build due to acceleration in their anticipated growth rates? Sure!
I feel the most important issue is DEMAND. If you talk to all of the communication systems vendors, they are all seeing the most robust demand where the communication semi guys sell. Yes, there are even bright spots in Lu's miserably executing business.
Could there be an inventory build out of communication semi chips? There could be, but there's no way to accept that conclusion from Osha's raw data.
But, let's grant him the benefit of the doubt with a complete understanding of his CYA motivation.
The growth in end demand for packet infrastructure and the core growth rates of the communication semi guys will likely fix any inventory problems in a reasonable time frame.
Do I expect 30% sequential growth? Nope. But Osha is incorrect in another conclusion. None of the players I know have raised their guidance for sequential growth in several quarters.
Are these screaming buys? No answer from me. Valuations ARE much higher. Moreover, since prices have compressed since much higher levels, I'd bet there's more overhang in any recovery.
Does Osha's call have real substance behind it? No.
TD |
