Computers, cellphones, and most other things with chips in them, are consumer discretionary (no, it isn't really necessary to get a new cellphone every 6 months, and a new laptop every year). So, unless it's different this time, tech and semis and the Naz won't be outperforming forever.
No it isn't necessary to buy these things every 6 months. But what is different this time is
1. A lot of tech stocks got super hammered in the last downturn, more than the even lousy fundamentals warranted, so a part of the huge up-move over the past year has been correcting the excess on the downside.
2. It has been awhile since there was a PC and an enterprise refresh; on the PC side, Vista was a bust, and a large number of companies simply held onto their Windows XP systems; on the enterprise side, the credit crunch played havoc with tech budgets, and even when due for an upgrade, companies upgraded as little and as inexpensively as possible, so there is a great deal of pent-up need and demand, several years worth of it; all of which should make the upcoming refresh much stronger than normal (and, according to reports I've read, both the PC and the enterprise refreshes have just entered their initial stage).
3. We have a boom in BRIC and Asian companies like we've never seen before. Electronic equipment is central to that boom, and demand in those countries has been driving a lot of the out-performance over the past year. As one CEO of a company I follow put last September, it's as if there was never a downturn over there (speaking after a trip to Shanghai, where his company has a plant and does a sharply increasing amount of business).
4. Chips and electronics generally are more important to everyone--individuals and companies--now than they have ever been before. Both as toys and as status symbols as well as essential to how they make a living. I have read a couple of articles about how fishermen in different parts of the world--both here in the US and in the third world--who have found cell phones essential to increasing their productively in a variety of ways, from communicating with other fisherman at sea to communicating with people onshore to tell them when they are coming in and how big a catch they will have to process (don't ask me how their cell phones work at sea--I have no idea; mine doesn't work sometimes when I am ten miles from my house!). I realize that that isn't in itself a very large market, but give people communication tools, and they find a way to use them.
5. Related to number 3 above--there are simply many more individuals with discretionary income and companies with needs for electronic gizmos today than ever before.
I'm sure there are other ways in which "This time is different," and I'm not suggesting that this cycle will last forever or that we will have an up cycle forever--far from that!--but I do think that we are just at the beginning of the end of the beginning of what will prove to be a huge cycle for chips and electronics generally. I welcome suggestions from others as well as rebuttals (and, cyberly knowing you, Jacob, I'm sure you will not refrain from rebutting!<g>).
One immediate caveat: The financial issues that erupted in 2008 after brewing for several years prior to that may prove to be so overwhelming that they will force another liquidity crisis and a premature end to this budding recovery. That is still possible. The debt loads and unfunded obligations of states and countries around the world is staggering, and there are still myriad trade and currency imbalances that are cause for worry. |
