Fred,
The modem price declines you describe are very natural---when modems were new and rare, they deserved a large profit margin. However, with increased competition and volume, modem prices have dropped sharply. Fortunately this has been coupled with a sharp and steady decline in manufacturing expense---so USRX's profit margins are still very good.
>Your argument seems to be that eventually everything becomes a commodity and therefore it is impossible to sustain growth.
No. What I said, are that modems are continually becoming more of a commodity. If modems were a proprietary product (like Intel's chips, or Microsoft's Windows), then they wouldn't become a commodity (unless a lot of untraditional, and strage circumstances take hold). But as our friend Mark so eloquently put it--to build a modem, all you need is a Rockwell chip, a circuit board, and some glue. While he is oversimplifying, the underlying basis for his statment is valid. (And I don't want to get into quality issues, because that's not what I'm discussing.)
RE: Growth, 40%, etc.....Look Fred, the market clearly believes that either 40% growth is not good enough, or unattainable. Me, I don't fight the trend, and I'm not a bottom-fishing value player. If the market is negative on USRX, then I'm not going to stand in the train tracks. Once things get really ugly, I'll be inclined to step in on an oversold stock (and market). But like I keep saying, there still isn't much "BLOOD" in the streets, yet. And hopefully, USRX will prove the market wrong and continue to grow at 40% for a while. If that is a case, the stock will eventually soar--so I would rather wait-and-see, and get in a little higher. The extra money I will have to spend to buy USRX will be a valuable insurance policy. It's just important to me to see that the market was definitely wrong for hitting USRX (and the entire tech sector). Or, like I said, when things get overly overdone.
My personal feeling on the techs is that many companies are in product transition periods, and that purchases are being delayed as customers either wait for new technology, or choose between competiting vendors. With that, I'm not too gung-ho for April's earnings reports for the techs as a whole.
About the my parallels between semis/MU and networkers/USRX. Hey, like I said, it was a very extreme example. But I think you understand the underlying point which I'm trying to make. IMO, the best way to really get people to think about what I was trying to say, was to use the semis as a scare tactic....I also used SHVA in my original example--it appeared to be a great company, with great growth, etc. It fell from $89 to the mid-30s before they finally made the announcement that they wouldn't even come close to meeting estimates. While I think it was more SHVA's fault than anything else, it does show that it isn't as idiot-proof-easy to make money in the networking industry. IMO, we will continue to separate the men from the boys with the sector. In my eyes, USRX is a "man," as are CSCO and ASND....However, that isn't going to stop the market from selling all of them, and all the rest of the techs as well.
Sal Habash |
