Yes, every one analyses from a demand standpoint and forgets about supply. Supply controls it seems in a global enviroment with the Chinese. I did this also and a wise man told me to think about supply. So now I try to do this. Demand can work with a special product or niche product but in technology this does not last for ever. Microchips hit an all time demand in sales but look at the margins and profits in the industry.
VSH is the best of the component guys IMO. I own tyco and will be looking hard at the tyco electronics spin off to see if I want to keep it. Basically it is a passive component company with 30% of its business to the auto industry in cables and connectors.
Another aspect of supply is being the low cost producer. So plant location is very important.
EMS is another industry which has changed. Growth has stalled generally from competition, overcapacity, chinese, koreans etc. Net margins continue to be in the 1-2% area. Business mix is extremely important- witness CLS, SANM,SLR. Vertical versus horizontal business model is important. The mid tier companies minding their knitting and not issuing shares for bad combinations have done the best like JBL, PLXS and BHE. But last 6 months even these companies have come down quite a bit. Once again it is a supply problem, plenty of capacity and competitors. At least VSH has some special products with good margins like their strain gauges, inductors, and their power chip business. Buying rest of Siliconix was a good idea.
But I am staying clear of most passive and active component suppliers The pricing is brutal with the 5% ASP declining every year which is the best case scenario. And if you get hit with a commodity splurge like copper going from $1 to 3.50 a pound then you take a hit like Tyco of $500 mill a year for the 200mill pounds it uses in its cables.
You may remember Paul K.He has stuck with EMS and taken a beating especially in CLS and SANM.
Anyway good luck with your investing. The Macroeconomic situation looks OK to me but geopolitical matters keep me on edge.
Regards, Rich |
