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To: Johnny Canuck who wrote (40566)	1/5/2004 1:15:44 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69301

November Rain for Communications Gear By Bill Snyder Staff Reporter 01/05/2004 09:45 AM EST URL: thestreet.com In what could be a sign that the tech recovery is not as solid as it appeared, the U.S. Commerce Department reported on Dec. 24 that orders for communications equipment tumbled 9% in November, after four months of solid year-over-year gains. The plunge in orders for communications devices, which include telecom and data networking gear made by major companies such as Nortel Networks (NT:NYSE) and Cisco (CSCO:Nasdaq) , pulled down the entire computer and electronics category, which dropped $3.7 billion, or 10.8%, to $30.1 billion in November, the largest percentage decrease since July 2000. Overall November durable-goods orders decreased by $5.7 billion, or 3.1%, to $180.1 billion, the largest percentage decline since September 2002. However, it will probably take another month or two of data to show whether the drop is a blip or a return to negative growth. "Is it a red flag? No. But I would call it a caution flag," said Walter Custer, a longtime electronics industry watcher and consultant based in Sea Ranch, Calif. "I'll be watching the December and January numbers very closely." The disappointing November communications-equipment numbers could be a result of double ordering earlier in the year, when manufacturing capacity started to tighten and buyers became concerned that they would not get supplies in time for the busy fourth quarter, Custer said. Or it could simply be a result of order timing that moved shipments back a month or two. Also, because the communications segment is defined so broadly by the Commerce Department, the numbers tend to blur differences between sub-segments. "Wireline business -- [think Nortel or Lucent Technologies ] -- is slow, but parts of the wireless business seem strong," said David MacGregor of Longbow Researcher, which conducts a monthly survey of more than 200 second- and third-tier electronics distributors and manufacturers. Indeed, MacGregor and Matt Sheerin of Thomas Weisel Partners each recently highlighted Vishay Intertechnology (VSH:NYSE) , a large maker of components for communications and consumer electronics, as a stock to watch in the first quarter. Nearly half of Vishay's revenue is tied to sales of so-called active semiconductor products, including "discrete" products such as devices to regulate power and conserve battery life in handsets and other electronic products. (Wall Street expects the company to earn 9 cents a share on sales of $602 million in its December quarter.) MacGregor, who upgraded the company to outperform on Wednesday, said capacity for discrete products is getting so tight that Vishay and its competitors may well raise prices in the first quarter of 2004. "No one wants to be first, but if products start going on allocation [i.e., rationing] , all the vendors will feel comfortable making a move," he said. Longbow does not have an investment banking business. Sheerin also expects to see pricing improve early in 2004. "Longer term, Vishay's unique and broad product portfolio, spanning active and passive commodity devices, will give it an edge as OEMs and [electronic manufacturing services] look to consolidate their supplier bases," he wrote in a recent note. Sheerin, whose company does not have a banking relationship with Vishay, called the company's balance sheet solid, with its debt-to-capital ratio at 25%. Based in Malvern, Pa., Vishay easily outperformed the Philadelphia Stock Exchange Semiconductor Index and the Nasdaq Composite in 2003, appreciating by about 104%, compared to the indices' respective gains of about 76% and 50%