The majority of SCEs can make money even in a downturn,
but usually they layoff heads, and take accompanying
charges. It depends on how bad things get, just how
radical the layoffs get. Alot of the small caps DO
lose money in downturns, and the mid and large cap
SCEs also may have several negative qtrs, if they are
not nimble, or are reluctant to downsize headcount.
Look at SUNW to see an example of what a company does
in a downturn, when it refuses to cutback workforce.
Lam survived the last downturn well, with layoffs and
their new outsourcing strategy. During the rampup from
'02-'03 lows, the efficiency of Lam's workforce was key
to their success. Much of their manufacturing is out-
sourced and doesn't show on Lam's balance sheet, except
as costs. No benefits, and other 'people' overhead to
eat into profits. But the analysts were very slow to
recognize Lam's new 'lean and mean' production abilities,
as shown by Lam's P/E lagging for many qtrs near 10, while
other SCEs were >20.
Now if we can get the 'options as compensation' monster
under control, life should be much better.
In the mean time, energy prices and interest rate hikes
will be prime movers and may tip the economy over. IMHO
energy prices are already excessive, and the FRB is on
shaky ground after a record number of hikes. JMHO.
Don't take any...
Woody Nickels |
