Hello Gary,
It's funny how people like to latch on to one particular moment. It's just like the guy that says I have been bearish on Intel forever - he appears to remember a moment. He does not remember that in '96 we talked about fragmentation of the PC market and a glut in memory production. Hey, for that moment we were ahead of the curve and it took longer than expected for the trend to evolve - wrong at the moment but right for the long term - <sigh>. Today, we have massive fragmentation in the PC space which has penalized margins and earnings.
To answer your question: I still believe that the current downturn is an extension of the severely over-capacitized state the industry was in during latter months of 1996. Clearly, the move by a number of players to 0.25 micron delayed the inevitable downturn. Also, the hell-bent for leather ramp in Taiwan got everyone believing that the bottom of late '96 was the real McCoy. Whew! The Taiwanese are really hurting right now!
If you talk to people who are closely tied with the equipment business they will tell you that '97 was a bit of a fluke - real but a bit of an anomaly in comparison with past cycles. We were looking for demand side weakness and it only materialized in a few segments. Today, a different story can be told about the demand side (here is a chart depicting the demand side weakness <http://www.infras.com/news/units.gif>. Help me. If you have evidence to the contradict this data please present it.
I also believe this cycle is different because we have never witnessed a period where it was prudent to borrow and spend on new fabs so you could make products that lose you more money. Now that's a business model that I find utterly amusing. No Limit-Poker? Strikes me as a complete and utter disregard for the "first law of holes"! Maybe we could get an answer from the Koreans or, how about the Japanese!
If you can provide me facts that will support a recovery in the semi-equipment market or, datapoints that suggest slowing unit volume growth and over-capacity will not weigh heavily on the industry for the next 12 months, I would happily spend some of my money on depressed semiconductor shares - AMAT included. Just show me data that tosses the great majority of evidence out the window!
Contrary to some belief on this thread, I did not recommend AMAT at $62 to our readers. Being a semi-equipment and semi industry follower I/We do hold a number of stocks at prices that are much higher than where they are trading today. Yes, riding these down has not been fun but I have tried to tell our readers that our suggestions should never be construed as a 100% solution for any portfolio - there are other areas that are attractive for investment dollars - it is foolish to think any different!
AMAT and INTC are great companies (yes, there are others!) and stocks investors should look to own. If you have a short term horizon today was a good day to own both issues. How one views performance is greatly influenced by the time horizon they set for their investments!
Is there a pot at the end of the rainbow? Absolutely! There are pockets of strength in the device manufacturing business and that is where we will try to position our investment dollars. This downturn is not the end of the world and maybe in mid-'99 we will begin to see an upturn. Maybe it will take until the early part of '00. All I can tell you is that when we see an upturn we will hear it from the device manufacturers, the companies that supply components to the equipment companies and the equipment companies themselves. Have you heard any news like this today?
Of course, 99% of Silicon Investor hates anyone from the analyst community so I expect this note to be fully scrutinized. The masses especially despise anyone that voices an opinion contrary if it conflicts with a position they hold in their personal portfolio. I have been trading for a long time and fully realize that issues like this are what makes a market! :-)
Good luck to everyone. :-)
Regards,
Carl
INFRASTRUCTURE
infras.com
P.S. Is anybody else concerned about the macroeconomic picture that is quietly developing behind the scenes?
"It is a good rule to follow the first law of holes.
When you are in one, stop digging." ---Dennis Healey |
