Michael,
I thought you'd enjoy this column from the New York Times, especially as it gives Fred Hickey some long-overdue praise:
December 3, 2000
MARKET WATCH
Memo to Analysts: Thanks for Nothing
TO: All Brokerage-Firm Equity Analysts
FROM: Disgruntled Investors
We, your customers, are writing this memo today to tell you that, if it were up to us, most of you would be fired.
Your inability to see trouble at a company when it is staring you in the face — so that you could alert your customers to problems before their stocks plummet — has cost us billions of dollars in recent weeks. Your performance is a disgrace.
Last week's crack-up of Gateway — which cost us $3 billion in one day — was only the last in a long line of stock market disasters that took most of you inexplicably by surprise. You were stunned that the computer maker's sales had crashed to a halt and that the fourth quarter and 2001 were suddenly looking grim. After all, when the company wowed you with its third-quarter results six weeks ago, hadn't John Todd, Gateway's chief financial officer, chirped, "The sky is not falling"?
Last Thursday, as the sky was indeed falling on Gateway's shares — they dropped 32 percent — some of you were heard to grumble that management had not been straight with you. Nice to be able to assign blame elsewhere for the debacle, isn't it?
It is true that on Nov. 20, Mr. Todd said in response to a report from Jason Wells at Wit Soundview that he was comfortable with Wall Street estimates for fourth-quarter revenue. Mr. Wells was perhaps the only brokerage analyst down on the stock. Six trading days later, Gateway said the rosy estimates from the rest of you looked high by about $500 million. Only then did you temper your devotion.
What we don't understand is why you think equity analysis consists of dialing up company management and smiling when they tell you how great things are.
After all, evidence that personal computer sales were sliding has been pouring in recently from independent research concerns like PC Data, NPD Intelect and Dataquest.
And Gateway's sales were slowing — the main surprise that sank the stock — as anyone who cared to look at the company's third-quarter results could see. For example, even though the company had opened 800 new retail outlets in the last 12 months, its computer sales remained flat.
But on the company's conference call Oct. 12, did any of you wonder aloud why flat PC sales came in the midst of a big retail expansion? Did any of you query the company about what was behind the $1.53 billion in so- called other assets on the balance sheet that had increased 20 percent from the previous quarter? The company now says it will write down $200 million related to these assets in the fourth quarter.
None of you asked about these trouble signs. You were too busy high-fiving the company for its results. Of the 13 analysts that asked questions on the call, six were careful to congratulate Gateway first. The applause came from Donald Young at PaineWebber, Richard Gardner at Salomon Smith Barney, Gillian Munson at Morgan Stanley Dean Witter, Dan Niles at Lehman Brothers and Kevin McCarthy at Credit Suisse First Boston. Nobody's clapping now.
For those of you who want to learn the ins and outs of meaningful securities analysis, ask Fred Hickey, editor of The High Tech Strategist, for lessons. Mr. Hickey, who lives far from Wall Street in Nashua, N.H., has been increasingly cautious on Gateway. In October, he predicted trouble for the company, based on a thorough dissection of its third-quarter earnings. Mr. Hickey has been equally prescient on Dell Computer, Micron Technology, Compaq Computer and Intel, well before the stocks collapsed.
Those of you who don't feel like doing the work that real analysis requires, take heart. If your bosses show you the door, you have a bright future in public relations. |
