Don - two questions:
1. The method of calculating bookings and/or billings has recently changed. Though I forget the nature of the change, my recollection is that it inflated the BtB versus the old method. Is there any problem comparing the 'old' bookings/billings data with the 'new'?
2. In the 3 'booking cycles' you cite, my perception is that most stocks in the sector began strong rallies soon after the bookings turnaround (and certainly subsequent to the billings turn). If my memory is not completely Jello, 4-6 months into the prior 3 'booking up cycles', 90%+ of the stocks in the sector were surging up...and continued to surge for ~6 or more months. You know what my next question is: so what the heck is going on now?
We're 4-6 months into the current 'booking up cycle', a time when history tells us the sector should be on a tear, and the SOXX is crashing (and the equipment stocks are LEADING the market down, not passively following along). The current behavior of the sector is historically unique (vs. the cycles you cite): while your bookings extrapolations are based on the historical record, investors appear to telling us that this time is different (in the worse possible sense). If the distortion of Sept. 11 is removed, the SOXX just closed at its lowest level since 04 April, 2001 (463) - a level for that period which appeared to be appropriate since bookings and billings were very bad..and not improving.
But now we have this bizarre dichotomy of bookings increasing while the SOXX is leading the market lower day after day after day. And since, on a relative basis, the data comprising the BtB is a lagging indicator versus the stock market, I find the SOXX/bookings anomaly disturbing.
To say the least.
My experience in this sector tells me that investors can get very, very wound up in cycle-extrapolation while ignoring what is happening in their face (I am an egregious repeat offender). How many times have I thought to myself, 'Why in the <bleep> is the stock (read: KLIC) doing 'X' when EVERYONE KNOWS the data is saying 'Y'?' Almost invariably the answer arrives 3-6 months later when the 'real world' data come out.
And right now the equipment stocks are telling us, IMO, that we may very well be going through another significant contraction, another down cycle, that will be at least as vicious as the one supposedly just completed. In contrast to the expectations raised over the past couple of months, I think the equipment sector could be dead money, if not a lot worse, for the rest of this year (this conclusion, in fact this entire mighty tome, should serve as a clarion call for the sector to begin its greatest rally in history at 9:30 AM, Monday, May 6, 2002 <gg>).
Sarmad's concerns regarding Intel's substantially reduced CAPEX, the virtual absence of telecom CAPEX, and the overcapacity of fabs are, IMO, compelling. A picture emerges of a sector where the historical generators of growth (at least during the previous ~decade) are 'limited'...to phrase my current outlook in the gentlest of possible terms.
I've been investing in the equipment stocks for 6-7 years now and I've learned some very tough (and costly) lessons regarding the separation of (primarily subjective) wishful thinking from (primarily objective) 'real world' sector conditions. The current application of the tiny bit of wisdom I've gained from this experience tells me that the bookings (or billings) extrapolation, in light of the plunge in the equipment stocks, will not provide an accurate prognostication of the equipment sector for the next 3-4 quarters.
Best wishes,
Scott (a.k.a. Mr. Cheerful) |
