More confirmation of what we learned from CommanderCricket, this time from Herb Greenberg -
Chip chatter: IPC, the trade association for the printed circuit board industry,
reported its May book-to-bill ratio Monday. This is the arcane indicator I started
mentioning earlier this year as a sign that Sanmina (SANM:Nasdaq - news -
commentary), through its Hadco printed circuit board sub, faced some potentially
serious issues. Interestingly, though, while the latest numbers showed that orders
booked year-to-date continue to slide, the rate of the slide slowed from April. A
good sign, right? Maybe if stocks were trading at trough valuations, says this
column's best short-selling/hedge fund source on chips (the one with the killer track
record on calling the decline in Broadcom (BRCM:Nasdaq - news - commentary),
International Rectifier (IRF:NYSE - news - commentary) and a bunch of
others.) "But at revenue multiples that are still higher than previous cycles' peak
multiples, and prospects for a snap-back less certain due to a fundamental
slowdown in key end markets," he says, "this is more bad news. Remember, we
had a telecom boom that pulled us out of the last trough."
And as Applied Micro's (AMCC:Nasdaq - news - commentary) warning Monday
proves, this is anything but a boom. As I mentioned on Monday's Columnist
Conversation, quoting the above short-selling/hedge fund source: "AMCC still has $4
billion of market cap. Even if inventory issues are causing them to undersell true
demand and real sell-through revenue is $60 million instead of $40 million, that is a
$240 million run-rate. How can a company at a $240 million run-rate, with
questionable profitability going forward, be worth $4 billion? Would not surprise me if
some investors will try to buy the bad news, but these same knucklehead go-go
guys did the same things with Exodus (EXDS:Nasdaq - news - commentary),
Amazon (AMZN:Nasdaq - news - commentary), Ariba (ARBA:Nasdaq - news -
commentary) and a never-ending list of about 500 other companies. Will they ever
learn?" No! But they should. This morning Merrill Lynch said that because of
contractual obligations, Applied Micro is sending out product to customers who do
not need it! (Put another way, this quarter's revs are overstated, too!)
And that's not all: Confides one industry insider, who supplies Silicon Valley original
equipment manufacturers and contract manufacturers with electronic components
such as connectors, fans, resistors and capacitors: "We're hearing that the larger
distributors such as Force, Arrow (ARW:NYSE - news - commentary) and Avnet
(AVT:NYSE - news - commentary) are dumping their active components
(semiconductors, etc.) at 5% gross margins. As you are probably aware, the active
components make up approximately 70% of the cost of any particular electronic
assembly (such as a computer). A personal friend, who happens to be a sales
manager at one of the larger distributors, likened the active components to 'cheese
rotting on the supermarket shelf.' " |
