re: fiscal 2002 EPS estimate is $0.30 for EMC:
When you calculate expected future prices for AMAT, you use peak cycle EPS, times expected PE. Why are you using trough EPS to value EMC? EMC is spending 10% of revenues on R&D, and that is a big fixed cost, if they want to continue to dominate their sector. It hurts earnings now, but EMC will earn $1/share when IT budgets come back. My guess is in 2003. Unless you think EMC will be growing EPS at a rate far lower than the past-5Y average of 35%, EMC is undervalued now. Not so sure about JDSU, as I have posted previously on this thread. Will JDSU be earning more than EMC in the next 12 months? You are not willing to ignore current poor results with EMC, because you don't like the industry.
The concept of "Bubble revenue" is useful. When your customers are using debt and venture capital and IPO capital to finance their purchases, it is going to end badly. At some point, they will run out of financing ability, and then your revenue collapses, for years. OTOH, if your customers are using cash flow to pay for your products, then the downturn is going to be a lot shorter, and the rebound from the downturn will return you to the previous trendline.
The telecom buildout of the 1990s was not financed out of the cash flow of telecom service companies. It was financed with a mountain of debt, and IPO money. Therefore, the 1995-2000 revenues of telecom equip companies, and their component suppliers, is largely "Bubble revenue". We cannot expect a rebound to bring us back to that trendline.
But this is not true of all tech sectors. In particular, tech equip companies who sell to the "Old Economy", don't have this problem. For those tech companies, demand will come back a lot sooner. So, for instance, EMC sells storage to steel and oil and car companies, and everyone else. Their customers are a good proxy for the entire economy, which is nowhere near as leveraged as the telecom sector. EMC's revenues in 1995-2000 (in contrast to, say, JDSU's) were not "Bubble revenues". All IMO. |
