I'll start by saying I'm now offically a short term bear. I own a number of puts. Quite far out of the money. They were all purchased yesterday... but the stock will have to fall quite far for me to make any serious money from my position.... on the other hand my risk is very small... WHY WOULD I DO SUCH A THING... WHY WASTE MY TIME....
Well this is the way I see it... When James Morgan reduced expectations for the next two quarters, he gave one vital qualification... HE WOULD HAVE TO SEE WHAT HAPPENED IN JAPAN.... well what has happened in Japan.... Yesterday SONY... perhaps the Co least affected by the domestic Japanese market said that Japan was on the verge of a 1929 type reccession.... and that there was a liquidity crises... LIQUIDITY CRISES are rather bad for an industry in which $3 Billion buys an average fab.... IMO the situation in Japan can only get worse.... THE REASONS... it is too big to be bailed out by the IMF... the World Bank or even Rubin Sachs.... THINK ABOUT IT... How did the US get better after 87, how did the UK recover and become a competitive economy... LONG PERIODS OF AUSTERITY... the weak went to the wall... DEMAND COLLAPSED.... why would anybody think that SEA and Japan should be different... Inefficicant producers and practices have to be purged from the market... IT HAS NOT HAPPENED YET... and when it does capital spending will be the FIRST to go.... NOW long term this is going to be incredibly + for AMAT as it will hit Nippon electric one hell of a lot harder and there is no Co. better placed to survive the shock than AMAT... but no way is it immune... THAT IS WISHFULL thinking that really should have been purged by the last cc when they explained that their famed order book is subject to pushouts either and were pretty honest about how vunreble they really were to the vageries of macro markets... REMEMBER it is widely quoted that most large Japanese financial instutions have a negative net worth when the nikki drops below 15,000... last time I looked we were nearly there... in spite of a few trillion yen spent in a failed attempt to get the Japansese equity markets to rise... NOW I CHALLAGE ANYBODY ON THIS THREAD TO SAY HOW DOMESTIC DEMAND IN JAPAN IS GOING TO GET BETTER BEFORE IT GETS WORSE... interest rates are at 1% already and its done nothing, the yen is declining, and cannot be supported because higher interest rates will kill off consumption alltogether... there is a disinvestment in yen assets because of the yen's decline.... IT IS NOT A PRETTY PICTURE
Bulls on this thread have for a long while said that INTC's capex was sacred. Brian offered to post a quote where INTC apparently said that CApex might rise this year... I have not seen this post. What I do see is that INTC's margins are threatened and that IBM/AMD NS/Cyrex have successfully breached the fortress... NO INTC IS NOT GONNA DIE... but anybody who thinks ANDY PANDY gave up power because he wanted to spend more time with his grandkids is deluding themselves. THE FACT IS THAT INTC MADE A STRATIGIC MISTAKE THAT HAS LONG TERM CONSEQUENCES FOR ITS MARGINS IN THE CPU BIZ... IT NOW HAS COMPETITION AND A PRICE POINT THAT WILL DIMINISH MARGINS FOR EVER... and don't be fooled by the "its only at the sub $1000 level" BS... because the history of tech is that once margins at the low end shrink... so gradually margins shrink at all other levels of tech sophistication... look at the effect of NT on UNIX in the DATABASE market, look at the history of the color TV... NOW LONG TERM AMAT HAS NOTHING TO WORRY ABOUT BECAUSE IT ONLY CARES THAT THE TOTAL MARKET FOR SILICON INCREASES... but short term its a problem... because with CAPEX declining at its competitors INTC can afford to take its foot off the accelerator and reduce CAPEX... it is POSSIBLE THAT THE KLIC announcement is an early warning of this. WHEN JUDGING THE POTENTIAL IMPACT OF INTC PUSHOUTS ON AMAT ONE SHOULD REMEMBER THAT THIS IS AMOUNG AMAT'S HIGHEST MARGIN BUSINESS.
So lets talk about DRAM... the myth is that because memory always gets cheaper... the decline in DRAM prices is the market working perfectly... and the Moores law is in place. THIS IS COMPLETE CRAP... THE DRAM GLUT HAS BEEN CAUSED BY SUBSIDIZED FABS IN SEA AND EUROPE overproducing... and this has created an 80's steel industry type debacle where supply far outstrips demand and fabs do not and have not needed to get a market return on capital employed... DRAM FABS WERE CONSIDERED STRATIGIC INVESTMENTS IN THE NEW ECONOMY... HOWEVER THE SITUATION IS NOW SO BAD THAT THE MARKET HAS TO CORRECT ITSELF... negative gross margins cannot be supported in any commodity business, eventually something has to give and supply has to leave the market... in other words disinvestment and bankrupcies must occour for this market to correct itself, and capital will move to more profitable industries untill the market has rebalenced, leaving the remaining producers with able make economic returns... Actually the subsidized nature of DRAM production is going to make this shock worse because it is the Govenments in Asia that are being hit hardest by the liquidity crunch, and govenments in europe (most noticabley the uk) have begun to question the economic worth of spending taxpayer billions on white elephants.
Which leaves the one bull argument.... If what you are saying is true... and AMAT will emerge stronger from all of this why shouldn't we buy and hold here to make sure we don't miss out when the bull run really begins, and isn't that in fact what this market is telling us.... THE ANSWER IN MY OPINION IS NO.... the market is telling us that institutions that did not want to show AMAT in their portfolios at the end of the last Q are nibbling as cheap sectors are hard to find... Unfortunately the SEMI's are only look cheap relative to an overpriced market, and are not in fact cheap given that revenues are declining and likely to decline further for the above reasons... none of which are priced into these stocks right now....
NONE I HEAR YOU SAY... well lets look at it... AMAT is projected to earn 1.30 ish this year.... but that was when the yen was 20% stronger and the Nikki 15% higher, it was before PC margins declined to nothing and cpu margins evaporated..... EVEN IF AMAT MEETS THIS Q... which is unlikely given the preannouncements by its competitors (AMAT's great, but in isn't dominant enough to be immune to the market)... EVEN IF AMAT meet this Q's #s it's will IMO reduce guidance for the second half of the year... TELL ME... IF AMAT MAKES $1 this year... is 37 x earnings for a co with declining revs a sustainable price... the answer has to be no... THERE ARE JUST TOO MANEY PLACES FOR CAPITAL TO FLOW WHERE RETURN IS MORE CERTAIN.... AND IF THERE CEASE TO BE PLACES FOR THE MONEY TO BE BETTER INVESTED IT WILL SIGNAL THE START OF A LARGE CORRECTION BECAUSE IT SIMPLY MEANS THAT ASSET VALUES HAVE BECOME TOO INFLATED. My poiint is that no matter how long term your view is, the $$$$ in the market will gravitate to places of certainty, and if it finds none, it will leave the market alltogether... and GSCO, LEH, MSDW, AND BARS (THE SHOPS THAT HAVE SUPPORTED THE RUN THIS WEEK) will be amoung the first to go... not because they're evil... but because its their job to protect the $$$ of their investors... |
