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

To: Paul V. who wrote (62164)	3/19/2002 11:51:50 AM
From: Gottfried	Read Replies (1) \| Respond to of 70976

Paul, I have reservations about investing in underperforming industry sectors. Bought some LU and SLR - both under water now. Gottfried

To: Paul V. who wrote (62164)	3/19/2002 1:23:37 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 70976

re: I look at the statistics and potential upside gain vrs the downside risk. AMAT is an excellent company with little dept. Qcom has no debt, as CSCO and other companies: I think, when comparing different companies, we have to look at all the big potential future liabilities. Different companies get themselves into trouble in different ways. There are a variety of creative ways management can add to shareholder's downside risk. Debt is only one of them. For instance, QCOM has no debt. But.........they have this bad habit of pouring money (big money, adding up to all the cash flow from chips and royalties, over the last 3 years) into kinky go-go telecom Concepts, in an attempt to expand the CDMA footprint. And those "strategic investments" have a nasty habit of turning into big writeoffs. Applied doesn't do this, so their shareholders have less future liability than QCOM's. One liability AMAT does have, is the potential for the company to spend a billion or so, developing products that nobody wants. An example of this would be when, at the bottom in 1998, AMAT wrote off their 300mm development effort. If you put these things back in, AMAT habitually is losing money during downturns. Since forecasting future chip demand (and therefore future semi-equip demand) is impossible, even approximately, this is a permanent risk the company (and therefore shareholders) have. Old Economy companies tend to pile up risk with debt, unfunded pension liabilities, and product liability. For instance, it seems like every company with any asbestos liability, no matter how tiny and remote in time, eventually gets forced into Ch. 11, as the only way to get out from under this liability. New Economy companies tend to overpay for acquisitions, develop products for unproven markets (that frequently don't exist), pile up inventory that can't be sold when macro conditions change, give out too many employee stock options, own technology that becomes obsolete. These things are harder to quantify than debt, and are hidden or absent from SEC filings, so there is a tendency to think these companies have less future liabilities. IMO, the liabilities are just different, not necessarily less. Disclosure: I'm long AMAT, QCOM, and CSCO, and have sell orders for all three, in increments beginning at 50, 50, and 20 (respectively).