Hi FR1,
Re: TSM article. If you could provide a URL, I'd be appreciative. It helps my research efforts to see charts or related links. Thanks.
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Cognitive dissonance alert: while the company's capital expenditure will decrease from US$3.8 billion last year to US$2.7 billion this year.
But the company said it will not scale back expansion projects.
Huh? How in the world can you scale back capital expediture by ~25% and not scale back expansion? These statements taken together make no sense, as far as I can conclude.
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1) Why is there such a build up?
Additionally, I'd say a lot of production in the Q3-Q4 '00 were devoted to equipment "sales" based on vendor financing to less than creditworthy customers. I cannot agree with you that breaking up AT&T is wrong. What was wrong in the first place was the overly-aggressive deal making by Armstrong when he first took the reins. He knew LD telephony was dying and tried desperately to find a cure for the company. His choice of buying every cableco he could was, simply put, the wrong answer. I don't believe there was a good answer. The old LD model is simply a relic of the pre-Internet era.
It is only rational to assume that spending will now increase in the sector.
Have you considered the alternative that there has been vast overinvestment in the telecom sector and that it will be attrited for the next 4 years or more?
You can argue how fast but it is difficult to argue it is not going to occur.
I can and will argue that rationality has come back into the capital markets. Investors are demanding adequate EBITDA and so hope of profit in the SPs. As things stand at present, the expansion of the network with greater bandwidth capacity only serves to decrease the potential for earnings for the carriers. This isn't going to be tolerated. So, yes, I can argue it is not going to occur. Not until there is a change back to the pollyannish views of supply making its own demand as espoused by certain lunatics in the past few years. If the carriers are in profit hell, how can the ASIC guys hope to prosper? I can't see a scenario that works.
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The future is not more inventory glut it is less.
Sure, and Keynes famously said in the long run, we're all dead. But in the meantime, I see no reason to think inventories are going to come under control except by cutting production. Since all industry is doing this in lock-step, we'll see demand decline along with supply. A vicious circle. Inventories will remain high. People are going to take their severance checks and pay their utility bills. They aren't going to be buying the latest whiz bang "fiber to the home" gizmo, first, because it isn't available and second, because it isn't necessary. The buildout of the data network is largely pushed by business expansion needs and consumer discretionary spending. Both of these markets are shrinking.
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3) Somebody help me on this. Absolutely everybody is singing this tune about the last half of the year before we reach any bottom and recovery. TSMC, who makes the damn chips, says the opposite. They say 30 to 60 days max. Who do you believe?
Mr. Chang is a smart businessman. He needs to keep his stock price up. He tells us that things will turn around shortly. He offers no proof. We are to take it on faith. The only thing I can see positive about the TSM situation today compared with '94 is that he was able to cut plant utilization at a much faster pace this time around. 105% to 70% in a matter of weeks. This will be good in terms of preventing the buildup of excess inventory from here. But it doesn't solve the problem of slowing end-customer sales of PCs, cell phones and other chip-loaded devices. It merely prevents the inventory build from getting worse.
I read the article completely differently than you. You write of 30-60 days til recovery. The article states baldly that the second quarter will be flat. That ain't recovery. And with TSM running at 70% capacity, I'd hardly call it prosperous at the stasis level.
Sorry, I think you are being too optimistic here. I'd love to be, but the situation in telecom is very unhealthy today and it will be for quite a while.
Regards, Ray |
