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Technology Stocks : Applied Materials No-Politics Thread (AMAT)
AMAT 226.05+1.3%Nov 14 3:59 PM EST
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To: robert b furman who wrote (2052)8/3/2002 11:47:40 AM
From: Sarmad Y. Hermiz  Read Replies (1) of 25522
 
Bob,

By all accounts automobile sales and auto industry have not experienced any slowdown. And we also know housing is at record levels, and so is consumption in general. But we always knew that was not the problem with the stocks market. The problem has been tech stocks.

With the economy running at a reasonable long term pace, one has to assume that tech/chip companies are also experiencing reasonable long-term level of demand. Yet many of them are showing very little profit, even though their sales are at levels that were very profitable a few years ago.

So the conclusion has to be that intense competition is eroding prices and profits. Which leads in quick steps that capacity has to be curtailed by some companies going out of business, or at least by exiting some lines of their business.

That scenario is being played out now with hundreds of dot-com's being delisted. The major bankruptcies of telecom companies. But what about their equipment suppliers ? shouldn't some companies in the space of corning or jdsu or adct or NT or Lucent go away ? Is it just a matter of time ? Then what about their suppliers ? like the chip makers ? And their suppliers, like the semi-equip makers ?

I think we've seen a couple shoes fall, but there are a few more to go.

Now to the question of why this stock market is taking so long to recover. The blame has to be with the ultra-low interest rates. They are slowing down the natural process of redundant companies going out of business permanently. First the irrationally exuberant money supply funded the silly business plans of the dot coms, which gave rise to a supply infrastructure that consumed hundreds of billions of dollars.

The writedown of the billions is proceeding. But unfortunately, even though enron and worldcom and their ilk are bankrupt, they are not out of business. They are continuing to compete and erode prices for the remaining companies while they avoid paying interest on their enormous loans.

Oh, enough for now. I'm glad your business is doing great. And I wish you continued success.

Sarmad
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