Craig
I'm now confused about our 'inventory' exchange:
SSTI management announced recently that, after current write-offs, they considered their inventory problem resolved. Therefore, if they have higher inventory than in some previous quarter, that portends future sales and profits.
On the other hand, SNDK appears to have inventory problems because they have the ability to produce far more product at a higher cost than they can recoup through sales (with still more product coming in the future).
I don't get this. I'm probably ignorant here. So you're saying that that inventory going from $73 to $136 million is good because it will be available for sale, but SNDK having dropping inventory but having more capacity to produce is bad? To the extent that they have capacity they can't use, they can't maximizing the potential from their investments and likely will lose money, but isn't that an entirely different issue than 'inventory'? Maybe I just don't understand the definitions here.
Bottom line is I guess I a) agree with you that with prices having dropped so much, the owners of fab capacity are in an unenviable position, but b) can't see or don't understand how the inventory numbers show SSTI improving and SNDK worsening.
As for higher cost than they can recoup through sales, if in fact SNDK's marginal production costs are lowest with Dominion, then in a long-run scenario, wouldn't competitors have to drop out (can't continue selling below cost forever)? Of course a costly price war doesn't benefit anyone, but in theory isn't that the end result?
If you check the price of both company's shares since my original post, it seems that I am not alone in this belief.
I don't buy this at all. There's ample evidence in my mind that share prices only track future income streams in the long run. In the short run, anything is possible - and unjustifiable volatility is likely.
Besides, what's the benefit in saying 'this stock is less horrible'?
Andre |
