To: Gottfried who wrote (3362 ) 11/10/1997 1:40:00 PM From: Sam Citron Read Replies (2) | Respond to
GM,"I tend to focus less on end markets and concentrate on trying to get the cycle right , because stocks will follow earnings trends. What we are trying to do is to get in and get out of the stocks at opportune times. We do it this way rather than make long-term fundamental cases about the applications of microcircuits, because I think those potentials are obvious to almost everyone...My whole purpose in being here is to predict the next [up or down cycle]...Cyclicality is getting more pronounced ...because the industry is becoming more capital intensive. So manufacturing is less flexible. It is less able to adjust to subtle changes in demand...then you have greater swings in inventory cycles, both up and down...When the industry had downturns 15 years ago, there would be significant layoffs in Silicon Valley...Today when companies face downturns, there are no layoffs because there are no people [due to greater factory automation]. The investment is all in machines and you cannot lay off a machine. You cannot get rid of the expense. The depreciation keeps getting charged to the companies. And when the demand drops and the machines go idle, the expense is still there...So earnings are more volatile [now] and the cycles are more severe..." "I don't think that's true at all. If you look at the last semiconductor downturn, capital equipment orders went down and the [equipment] companies went down too. The orders are going to follow the cash flow of their customers, and that will follow the [chip market] cycle."
