<<<I don't see how things could get much worse no matter what happens at the DOJ and this despite declining PC and/or software sales...or am I wrong? Any opinions out there?>>>
So far I don't see any evidence of "declining PC and/or software sales". For some odd reason, in the middle of all the gloom and doom, I haven't seen a single piece of editorial commentary on SAB 101 or the likelihood of it's accounting for the majority of the recent tech warnings when combined with the SEC fair disclosure rule.
For the Staff Accounting Bulletin 101 see:
sec.gov
To understand why it's hitting channel stuffers in Q4 see SAB 101B:
sec.gov
For years a lot of software companies, box makers, chip manufacturers, etc. have used the channel to meet or
beat their numbers. A lot of investors have been mystified over the years to find their favorite tech stock clobbered
once every 12-18 months when they are forced to clear the channel. The new ruling will stop this questionable
practice by requiring companies to only count "sell through" as revenue. In the long run, it's also likely to improve
margins as the typical scenario is to offer channel partners deep discounts at the end of the quarter as an incentive
to take on the additional inventory.
Reuters would like everyone to believe the economy is causing the recent rash of tech warnings and nothing could
be farther from the truth. The combination of SAB 101 and the implementation of the "Fair Disclosure" rule (see:
sec.gov ) have changed a lot of things. Probably for the better. Companies can
no longer give their favorite analyst guidance ahead of the rest of the market, which has historically amounted to
legalized insider trading. What you're seeing right now is panic being spread by the analyst community in order to
create buying opportunities for themselves. Since they can no longer depend on insider trading to give themselves
an edge in the market, they now need to look for absurdly under valued situations to leave plenty of room for
upside potential. Of course, cutting their ratings, or lowering estimates that were too high in the first place in order to push the bottom a little lower always helps too.
There was an interesting article in the WSJ Friday related to the performance of value funds in 2000. From what I've seen, it's the usual reaction to a market meltdown in over valued momentum plays.
I'm not sure if I can look at a stock trading at 25 times earnings as a value play, but it's a lot better than MSFT trading at 80 times earnings. My opinion is that there are a lot of companies right now trading at PEs well below 10, or so far below book value, that they will double a lot sooner than will MSFT. One thing I can say in Microsoft's favor is that SAB 101 didn't appear to have much affect on earnings, which suggests to me a more ethical approach to revenue recognition and channel distribution.
Those news agencies such as Reuters which have been hammering the market with FUD about recession for the last three months strike me as being irresponsible to a degree that defies reason. Since these are supposedly market savvy organizations, it seems unlikely they are unaware of SAB 101 or its affect on reported revenues. I've found Reuters to be a highly reliable contrarian indicator of what to buy and what not to buy. If Reuters likes a sector, it's probably time to exit any positions in that area. If Reuters hates a sector, it's time to accumulate a position. |
