I have two major "fundamental" reasons that lead me to believe the current expansion will not get us above the 2000 cycle peak (and maybe for clarity, I should say that a cycle peak in this "space" is when shipment of equipment peaks, traditionally, that kind of a peak coincide relatively well with stock price peaks as well). My first reason is really a belief no facts, just an observation of the economy and conclusions that might or might not be right). I believe that the recent economic situation has not been a recession, I have stated that belief for quite some time. After 9/11, I thought for a very short time I would be proven wrong, and a normal recession would be precipitated, but it turns out that 9/11 managed to get us a single quarter with negative growth in GDP, the fourth quarter was already positive, and all indications are that the current quarter is also going to be positive. My "model", assumed a profit recession (first dip) due to inventory correction and excess capacity, followed later (maybe a year later) by a real consumer led recession. if that model is correct, then we still have the second leg to drop, and before the chip people can rev up to an 85% plus capacity utilization, another contraction could ensue. If that is the case, only little capacity expansion will be sought, enough maybe to get us for six to twelve months to shipment levels of up to $1.5 B month (nice double from the current rate, but far from the peak shipments we were accustomed in early to mid 2000). That is the second assumption that form the basis for my tenet that the current cycle will be a far cry from the 2000 cycle peak. Mind you, as far as stock prices are concerned, the April to August 2000 highs, where real "mania highs", thus my surprise that the semi equip sector is already pretty close to the 50% plus level of those "mania highs', with no real short term prospects (18 months?) that their sales and profit levels will come close to the first three quarters of 2000.
Zeev |
