Hi Robert,
While I agree with most of your analysis, I disagree with your result
for APSG being the safest company.
AST renegotiate profit margin with the government every spring. While
the last negotiation was very favorable to AST, the next one would
not. There is no doubt in my mind that the government thought AST
charged (made) too much money this year. The profit margin for
all of existing product would definitely be negotiated to a lower
price. The only way for AST to continue this year's profit
margin is to push out new products and charge the government based
on the cost of engineering build instead of operations build. As
almost always, engineering build is a lot more expensive than
operations build. When a new product gets shifted from engineering
to operations (while still priced as engineering build), there is a lot more money to be made.
Being an engineer at The Sillicon Valley myself, I don't think the
high demand for engineers are easing. As the latest EE Times
predicts, 1998's new EE/CE/CS grads would make 6.5% more than
the 1997 grads. And AST is not the only defense contractor
making big bucks. Locheed is giving $10,000 to $15,000 signing bonus
for software engineers. And I know someone whom has recently
gotten a $35,000 signing bonus from Cisco. A simple barometer
for the labor market is the housing and renting price in Santa
Clara County. This year's rise was 12%, next year is predicted
to be 10%. It's HARD to find people right now!
Best Regards,
Khan |
