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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Joan Osland Graffius who wrote (49649)	5/7/2000 10:04:00 AM
From: Zeev Hed	Respond to of 99985

Joan, since IBM is getting involved more and more in straight financing activities, that part of their balance sheet should really be treated as a "bank" balance sheet. I do not see their growing service sector as a problem (they get 27% gross margin on that vs 25% gross margins on hardware), and competitive pricing is not as big a problem in services as it is in hardware. By the way, I am not a big "fan" of IBM (I am a much bigger fan of MRK), the reason I brought it up is that it debt growth has been brought up often as an indication of the sorry state of affairs in the US economy and excessive debt. I agree that AMZN debt is a time bomb, since I have no visibility of it converting to equity any time soon, nor any cash flow to cover the interest. You must take off your hat to Bezo or his CFO, however, since he managed to swindle the holders of this debt at a very low interest rate. I think, however, that the last chunk already started to indicate wising up of the debt holders, I believe that the conversion rate has some "floorless" features to it, if memory serves. I have not studied it in detail, since I think that AMZN is on its way to self annihilation with the debt driven rapid growth they are attempting. One of these days, they will find their space occupied by the like of BN, and WMT, and if a recession comes our way, even a 10% decline in the top line could put them under. A 10% decline in the top line for IBM, will just be "a bad quarter" with no measurable impact on their corporate life, IMHO. Zeev