Herschel, to test your analogy to August 1996, which along with July 1996 was the bottom for AMAT and semiconductor stocks too, I looked up the monthly issues of Infrastructure for 7/96 and 8/96.
Here's what Carl Johnson had to say:
July 1996:
We think we will see a massive painful downsizing of many payrolls over the next few months. Just for starters, several large ... players have enacted hiring and spending freezes to compensate for the slowing business conditions.
August 1996:
Investors are pruning technology stock holdings because this downturn does not look as if it will end in the next few quarters and earnings, at least on an intermediate basis, will drop like a lead balloon. This case is quite simple to argue for much of the semiconductor sector.
Why will earnings drop? We could go into the obvious culprits like the long life of the 4MB DRAM, the massive deployment of capital to new manufacturing facilities and the inventory buildup of the last year ...
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Herschel, I think you are correct in identifying the present moment as being similar to August 1996 regarding what people are feeling and saying about the outlook.
On the other hand, Ramsey is correct that not everything is the same this time. But maybe this doesn't matter. Probably the fundamental causes of the revenue decline will be different in every downturn, so maybe this isn't as significant as the indicators that are more generic: layoffs and lack of earnings visibility.
Re. the stock prices, Ramsey is certainly correct that the price multiples of AMAT in particular have not fallen this summer to levels in 1996.
Smaller players, though, have seen price multiples drop even below the levels of 1996.
I'm not sure why AMAT's multiples are different. Maybe it's that the co. is so big that it has more shareholders, and they are less aware of a semi equip industry than they are of the semiconductor industry. So they think of AMAT as more of a semiconductor stock than a semi equip. I know that some people at least think that way. Anyway, AMAT's share price does follow the semicondcutor index SOX very closely:
over 6 mos:
tscn.com
and over 3 years:
tscn.com |
