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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (61938)	3/12/2002 1:03:25 PM
From: Sam Citron	Respond to of 70976

Cary, Ceteris paribus, larger companies do tend to have smaller PSRs and smaller growth rates. But sometimes all other things are NOT equal, hence AMAT has over twice the market cap of LU and sells at over 5 times the PSR. I am sometimes guilty of buying a stock on a strong chart even though the fundamentals have not yet turned. This is based on my belief that the market price encompasses all known information and that prices tend to anticipate recovery. Of course, sometimes this anticipation is premature. <g> Negative cash flow is never a desireable situation, but it does not necessarily suggest that Chapter 11 is near. LU is inextricably linked to the health of the networking industry and that industry is still declining from the bubble, as you have noted. DWDM resulted in 1,000-fold increases in capacity for fiber optic networks. Such discontinuities in the progress of technological innovation (much of which came from scientists working at Bell Labs) naturally result in a certain lumpiness in revenue streams and profitability. Moore's Law suggests that it should all work out in the end, as lowered costs begin to drive new applications and demand. But first these lowered costs need to reach consumers. There are a number of hurdles including (1) last mile connectivity, which is hampered as most areas of the country do not yet have effective competition for broadband internet, i.e., there is DSL or cable modem, or where there is both, the pricing is duopolistic rather than competitive; (2) the carriers tend to think like monopolists who assume price maximization = revenue maximization, instead of competitors with a price elastic commodity, where price decreases will actually lead to revenue and profit maximization; (3) regulation IMO has tended to underemphasize the benefits of standardization, which has led to overfragmentation of the industry and lack of interoperability for fundamental apps like short messaging systems across wireless networks. In spite of these hurdles, I am willing to bet that in the long run, rationality, innovation and Moore's Law will prevail, and that the greater fool now is the LU seller at 5 rather than the LU buyer. Sam