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Technology Stocks : Compaq
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To: Eddie Kim who wrote (20097)3/6/1998 7:47:00 PM
From: John Carson  Read Replies (3) of 97611
 
Does anyone see any similarities between the disc drive industry that collapsed last year and the boxmaker industry that may be on the brink?

1) Companies in both industries make things for computers or computers.

2) Companies in both industries make essentially commodity products.

3) Some companies in both industries got overvalued very quickly.

4) Companies in both industries were (or will be) in denial up to the very last minute before the roof caves in and their stock prices are eventually cut in half. CPQ is almost there. SEG was the first to go last year. DELL is denying everything today just as QNTM did last year until the final shoe dropped.

5) Shareholders make claims as to why their company is invincible and will not be affected by everything else going on around them. DELL is immune because they are a great company and have a great business model. QNTM is immune because they are kicking everyones ass and have half their business in DLT. SEG is immune because they are the industry leader.

6) Inventory problems for major companies in both industries. DELL has no apparent inventory problems, but once CPQ unstuffs the channel by dropping prices, people will buy CPQ and not DELL, so there goes DELL sales that quarter. SEG did it to everyone else last year and managed to cut everyones throat.

7) Companies in both industries start cutting prices so no one makes a profit anymore. Companies start to break even or report losses. CPQ started it today or did INTC do that a couple of days ago?

8) Once one company (SEG) goes down, they (WDC, QNTM, APM) all follow in rapid succession.

Is this a valid analogy comparing one industry with another? If not, Why not? If so, why not buy some puts on DELL and every other boxmaker in sight.

John Carson
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