Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gersh Avery who wrote (6127)	4/20/2001 2:13:13 PM
From: sirinam	Respond to of 52237

Another realistic comment from Greg Jones,Briefing.com 13:25 ET ****** Comm ICs : Comm IC is street shorthand for communications integrated circuits, which is techno-babble for the component suppliers to telecom equipment cos such as NT, LU, and CSCO. The companies in this group include PMC Sierra (PMCS), Applied Micro (AMCC), Broadcom (BRCM), and Vitesse (VTSS), and they are all trading up today thanks to PMC's comment that it sees improving demand in the second half of the year and resulting upgrades of these stocks from several brokerage firms. The case for comm IC cos: PMCS was the first to be honest about the downturn (see yesterday's 18:51 ET comment below) so it has more credibility in projecting a second half upturn. Inventories at the equipment companies will be aggressively reduced, leaving the door open for a second half increase in orders. The case against comm IC cos: Every company that we know of in the telecom equipment sector expects flat to lower revenues in Q2; all talk of a rebound is only talk; no one is seeing a rebound yet. Though equipment cos want to bring down inventories, they have made no progress yet. Cisco's inventories skyrocketed to $4.1 bln from $2.5 bln (on paper, they'll be $1.6 bln after the writedown, but they still have those inventories and will use them if demand picks up again). Nortel's total inventories fell, but component inventories rose $400 mln. As with the H2 rebound in orders, the decline in inventories is still a hope, not a reality. The focus on inventory levels obscures the real issue: end-user demand. Nortel tried to be optimistic by noting that network capacity would be fully utilized in about four months, but also noted that a "rationalization" is taking place in the industry. First, full capacity will necessitate some orders, but not necessarily increasing orders. Second, rationalization is a euphemism for industry shrinkage due to failures and consolidation. There are too many players chasing too little business. Demand will not grow significantly until this rationalization is completed, and industry rationalizations don't happen quickly. Valuation: among the comm ICs noted above, the lowest forward P/E is 48. An H2 recovery and 50% long term growth rate is pretty much assumed for this industry. Those are dangerous assumptions that leave very little room for upside surprises. Bottom line: Companies in this industry and analysts following them are living on hope rather than reality. Demand is still falling, inventories are still rising, and the end-user customer base -- telecom service providers -- will be shrinking over the coming year. - Greg Jones, Briefing.com