re: The bigger issue, for me at least, is whether these companies have retained their long term competitive advantages through this long bear market period.
Yes, that is the more important question, even for someone like me who is currently trading rather than investing. At some point, I will go back to BuyAndHold, and at that point it will be critical to be in the stocks of companies who come out of this downturn in a strong competitive position.
My longer-term take:
CSCO:
the company looks to be cleaning up in telecom-equip, while holding onto its base in enterprise networking. Companies almost never change their culture; NT and LU have defective corporate cultures, and horrible balance sheets; therefore, Cisco will gain a lot of share. Unfortunately, I have decided that Cisco is being run on communist principles: for the benefit of employees. Every employee gets options, and any losses on those options are made good, in effect by a wealth transfer from non-employee stock/option holders. Cisco and a lot of other tech companies are using various methods: doubling up on options, repricing them, exchanging worthless options for cash, etc. As a non-employee shareholder, I am obligated (by management policy) to make good on any losses the employees suffer. This is unacceptable.
QCOM:
They have won; the Europeans have lost; nothing can stop them now. I really don't see any scenario in which Qualcomm doesn't control the standard in their industry. Otherwise, my opinion is similar to CSCO: the company is now and will continue to do well, but I'm not sure the stock will, because of a basic flaw in management policy. I'm talking about the endless gambling in risky startups, leading to endless losses. 10 years ago, this was necessary, to establish their standard. Today, it shouldn't be necessary. Qualcomm is not a profitable company (not if all the costs are included), in spite of the success of their standards fight. If the current telecom boom/bust didn't teach them to prudently hold onto shareholder equity, rather than gambling it away, then nothing will.
EMC:
I've concluded that I was right about storage being one of the strongest sectors when the rebound happens (storage is one of the very few areas where venture capital is still available); but I've also concluded that EMC will fade in coming years. EMC vs. NTAP is, more and more, looking like Compaq vs. Dell. When hardware companies say they are going to morph into a software company (or a "services" company) this is often a sign of desperation and failure. Very few companies have successfully made that transition.
NTAP:
I continue to be strongly impressed by them. Any cash I can scrape together will go into LT calls (05C10 or 05C15), if/when the stock dips again into single digits. Their existing customer base has continued to be loyal, they have successfully expanded their customer base, eating into EMC's enterprise base. I am not worried about all the startups and new ideas in storage; the track record of this industry, is that it's a lot harder than it seems, to succeed in storage, and the winners usually keep winning (EMC being, IMO, an exception to this rule).
AMAT:
excellent company, well-positioned, unassailable brand, no creative accounting. The semi-equip industry has, every 2-4 years, the same severity downturn that all tech is having now, so the survivors in semi-equip have proven methods for ContingencyManagement (something that Cisco and others are learning the hard way). With the rise of fabless semis, and the 300mm/copper transitions, the semi-equips are getting more involved (and getting a larger % of semi revenues) in running fabs. Semis and semi-equips form permanent relationships. AMAT is serially gobbling up the various semi-equip niches, in much the same way CSCO serially conquered the various network equip niches a few years ago. The main difference is, AMAT acquires at industry troughs, while CSCO buys at tops (and suspends acquisitions when assets are cheap). When AMAT troughs at a P/S of 1-2, I'll load up.
JDSU:
Their industry suffered the worst excesses in overbuilding, so they will be the last to recover (a year or two after storage and cellphones); I've got time, lots of it, to decide if JDSU will dominate on the upturn, and what price I'm willing to pay. I'll probably spend a lot of time trying to answer these questions for JDSU, in 2004 or 2005.
ARMHY:
I've followed this one just this year, and there is less info available on it, compared to the others, so my conclusions are more tentative. So far, it looks like the problems are just (just!) that customers have stopped buying. All ARMHY has to do, is keep doing what they've done successfully in the past, and wait for the upturn, and they will be a smaller version of QCOM (without the Strategic Losses Division). Royalty companies who own a standard are good investments. |
