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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 148.32-3.3%Nov 14 9:30 AM EST
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To: Jacob Snyder who wrote (10279)3/6/2002 2:33:01 PM
From: Robert Douglas  Read Replies (1) of 10921
 
Jacob,

Good post!

As I see it, the reason the semiconductor equipment industry experiences such massive swings is that it sells capital equipment to an industry that sells cyclical goods. This is a recipe for violent swings.

What might mitigate this cycle in the future?

1) Less cyclicality of demand for end products.

I think this is happening as semiconductors move into more products that are "consumable" in nature rather than "capital" in nature. Also, as the proportion of these products that are replacement of existing products increases, there will be smaller swings. Replacement cycles are milder than growth cycles.

2)Consolidation of producers.

This is ongoing. As there are fewer and fewer competitors, the capital budgets plans are smoother and experience smaller swings.

3)Diversification of economic exposure.

This recession has been noteworthy because it is the first time in 50 years that almost every one of the world's economies has slowed down at the same time. This is not the norm. Furthermore, the U.S. is becoming a smaller and smaller proportion of the world's GDP which will diversify the purchase of final products by countries.

It's easy to say that this industry is condemned to violent cycles because of its history. I think this would be ignoring the factors which have caused these cycles. The natural maturation of the industry will lessen these swings in the future, IMO.
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