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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: avanti77 who wrote (8781)	6/18/2001 1:08:18 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 11568

re: bandwidth cycle: Thanks for that article. I like that way of thinking about it. A lot of tech industries and tech/communication markets are so new, and the economic expansion has lasted so long, that managements (and investors) have never experienced a cyclical downturn (in the general economy or the specific sector). There was much wishful thinking in the late 1998-early 2000 period, many investors taking the risk premium out of stocks, and many company managements structuring their companies as if a cyclical downturn was not a possible future. Now, investors and managements are learning the hard way that they are owning and managing cyclicals. A cyclical company cannot be as leveraged as a non-cyclical, if they want to survive the downturns. The article is right, it's hard to predict what a bandwidth cycle will look like (specifically, what the early signs of an upturn will be), because we have no past history, to look for the repeating patterns. So we're all guessing. If I sound sure of myself, it's likely I'm just trying to convince myself I know what I'm doing. In order to guess how long a cyclical downturn will last (that is, how long overcapacity will last), you have to answer 2 questions: 1. how fast will future demand grow? IMO, use of voice and data services will be relatively immune to a potential recession in 2001/2002. I don't see this as the main problem, or the big risk. Rather, the problem is 2. how fast current installed capacity (and still coming on line) gets taken out or becomes obsolete, so demand has a chance to catch up with supply, and pricing power returns to the service providers. Telcos going bankrupt doesn't necessarily mean capacity gets taken out. In fact, the companies may emerge from bankrupcy without debt, allowing them to compete (on price) even more fiercely, as their fixed costs (debt servicing) are much lower. Cheap telco equip will encourage more capacity additions, thus prolonging the period of oversupply. Like the semi sector, becoming more efficient in the telecom sector often means adding capacity. What we need is less leverage, less capital spending, less capacity, if the supply/demand imbalance is going to end this year. In addition, it must be understood that different kinds of capacity in telecom becomes obsolete at very different rates. 2G capacity in wireless is going to rapidly become obsolete, as 3G capacity is installed (assuming anyone can come up with a killer app for broadband wireless). OTOH, fiber will never become obsolete. Fiber in the ground now will be lit up a century from now. The equipment to light it up, however, will probably become obsolete as fast as chip-making equipment does. (Incidentally, that's why JDSU is on my buy list, but GLW isn't.) Downturns in chip/chip-equip usually last about 12-18 months (assuming no recession in the general economy). I don't know the answer to this question, or even a good way to approach answering it. TA: Since November 2000, the stock has been in a bottoming formation, a long period of backing and filling, slowly forming a firm bottom. The downward momentum of the stock, so powerful for so long, has ended. The lows of late last year have held. The unrelenting barrage of bad company, sector, and macro news is increasingly being ignored, or at least isn't causing any more gap-downs to new lows. This gives hope that last year's lows were THE lows. I just placed limit buy orders for WCOM at 15, 14.5, and 14. This is probably not a LT holding; I will probably sell at 18.5 and 20. I think it's going to take a long time to take out the January highs, probably 2002.