Just read my latest Red Herring magazine. The cover story was the coming crunch of investment capital for infrastructure. It said a lot of telecom (in particular) companies floated millions of dollars of junk bonds, and when the rates went up, the capital dried up...and these companies cannot find any more capital to further new technology initiatives. It was a pretty gloomy picture. I am certain that this is what the market was telling us in July when it sold off so dramatically. the last sentence in the story was: "if you this the storms have past, you might want to keep your raincoat on a little longer."
MSFT missing and ORCL beating is a perfect example of what is going on in the industry. We are shifting from a PC-centric society to an Internet-centric one. I predict we will see a lot of M&A activity next year as a result of two things: no capital for small companies (thus the need to sell-out), and companies trying to capitalize on Internet/wireless strategies by acquiring failing companies with these technologies. As in the past, big companies (or companies with dominant market positions with positive cash flow) will get bigger as the playing field gets smaller. This will be great news for the long term (as has been the case every time a capital crunch has ensued) for these dominant companies (this is how they get exponentially bigger), but will be unpredictable in the short term, as the acquiring companies expend cash to increase their dominant positions, and the companies that have floated these bonds, or are looking for capital, will miss their payments (thus increasing debt writeoff). As always, cash flow rules in this type of equation. In a way, the market is going to act like Darwin's law. As always, I am just a messenger, and this is only my opinion.
John |
