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Technology Stocks : John, Mike & Tom's Wild World of Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (2459)	8/9/2001 10:56:35 PM
From: John Pitera	Respond to of 2850

It sure looks like it.... it's just kills the common stock and the holders of them.... a review of PMCS Wrong! Don't Be Fooled By James J. Cramer 7/31/01 3:07 PM ET URL: thestreet.com If PMC-Sierra (PMCS:NYSE) is so darned cheap and the business is so darned good, why is it giving away equity right now? Why did it file a $225 million convertible subordinated note just now, especially because the company has a lot of cash. I think the answer is that the company knows its stock is overvalued given the near-term performance, and it wants to take advantage of that overvaluation by cashing in. Don't misunderstand this financing. It is the same as common stock in its effect on the stock. The funds that buy this piece of paper will then short common stock against it and the pressure will be identical for anyone who is long the stock. Now, though, PMC Sierra will owe some interest on top of the damage this piece of paper will do to the common. People, including people in high finance, have been fooled time and again by the effects of what seems like an easy, noninvasive piece of paper to issue. It isn't. There are costs associated with convertible subordinated notes and the signals management sends when it issues one of these is just as obvious as if it were to issue equity: It needs the money. I think it needs the money because even if inventories are lean at the Ciscos they won't be built back up anywhere near where they used to be. Which means that on an earnings basis PMC-Sierra is still ridiculously overvalued. Don't be fooled.