Dear Mr. Wang,
Unfortunately I feel that you are incorrect. I am a fund manager
that invests in high tech stocks only. I am a Carnegie Mellon
graduate in mechanical engineering. I hit every high tech show in
existence almost including SEMICON, Comdex, Internet World, Interop,
and Database Client Server World. I visited ISSI this past summer and
met with the CFO personally. At that point I decided to short them.
I also shorted Alliance. WHY??? Because SRAM is a commodity memory
product and both Alliance and ISSI are fabless. What does this mean?
When there is a shortage of a commodity product, prices go through the
roof and so do profit margins. As an example if there was a shortage
of water and you were thirsty like everyone else the price would go
through the roof. As soon as enough water was available again, prices
would fall through the floor. The same is true in any commodity
product and sales growth and earnings come in big swings. If we enter
a period of oversupply prices will go down until only the largest guys
are making a profit. Unfortunately, being fabless in a commodity chip
arena is extremely dangerous. WHY??? Because fabless companies have
to pay someone to manufacture the product for them, while someone such
as Micron owns their fabrication facilities. The companies that manu-
facture SRAM for both Alliance and ISSI have to make money or why
would they make SRAM for them? They would make a different part for
someone else. Therefore the cost of goods for both ISSI and Alliance
are higher than companies that do the manufacturing themselves. Hence
in a period of oversupply, which when I did my calculations, has the
possibility of occuring in 1996, prices go down to where only the
most efficient SRAM producer is going to make money. Alliance and
ISSI will go from making a profit to losing money in this scenario I
GUARANTEE IT. As long as there is no oversupply, these stocks will
rebound. I have covered both my Alliance and ISSI shorts and have
actually purchased a little IDTI. WHY IDTI??? because they are not
fabless, they have a broader product line (they make FIFOs for routers,
they have a RISC processor business that also goes into routers and
competes against the Intel i960 processor, and they are the dominant
supplier of the cache tag business. Good luck in your investing. As
long as there is not an oversupply in SRAM these (ALSC and ISSI) could
hold on and they may even pop back but I just don't like the risk
associated with there fabless nature.
Tom Claugus |
