Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Mason Barge who wrote (4359)	1/7/1998 8:34:00 PM
From: Jay M. Harris	Read Replies (4) \| Respond to of 10921

Mason, I respect your long term bullishness. I think you know that I have been one of the more outspoken bears on this thread. I have turned extremely bearish on this cycle ever since Intel's 3rd quarter earnings report. My cycle rollover posts remain on the IPEC thread which have included many clues as to why the current cycle is over. Since Intel's 3rd quarter, conditions have continued to get worse. I'm not bothered that many people on this thread strongly disagree with my 1X revenue target for this group. Many of you are extremely on top of the long term technology & demand drivers that will ultimately drive equip prices higher. I recall a broker calling me from California on the Cymer thread several months ago when I warned that thread of an impending turn in Cymer's fundamentals. Needless to say, I was not on his list of people to send Christmas cards to. I'm lucky there is no contract out on me, as many of those threaders were extremely leveraged and accused me of being a short rumor monger. Emotions run high when hard earned capital is at stake. What really provokes me is that people who should be in the know as to the current fundamental risk confronting this group don't seem to be confronting the real problem. These people are highly paid professionals that do nothing else for a living , but study and consult others on this group. I personally am responsible for many other areas within the technology and communications market place. Frankly, I've spent more time explaining cycle dynamics to various threads on SI during this downturn, than following up on other very difficult issues confronting the networkers and telecom industry. I know SEMI and Infrastructure have been bullish in the face of what is now an obvious inventory and capacity correction. Wall Street equipment analysts have gone to great legnths to break out various SEA exposure for the various equips. It is also true that the stocks have dropped alot from their highs discounting the associated risk from Asia. The fundamental risk to equip valuations over the next 5 months will be the exposure equips have to capacity adds from North America; Europe and Japan. Although much of Japan's equipment is supplied by Japan equipment Cos i.e. TEL etc. This is the risk that may take us to 1X revenue. My story will play out with many of the chip company earnings reports due out over the next month. Intel will make the quarter, but yield (no pun intended) huge gross margin concerns for q1 during the seasonally slow period. It will soon become evident that Intel's blended average ASP for micros is rapidly driving the Gross Margin down because of a weighted average mix shift in the processor portfolio to sub $1,000 PCs. Also, this will be in the face of slowing global PC demand, and decent competition from AMD and CYRX at the low end. I expect Intel to trade to $55 or $60, yet I hold it for the long term in all of my clients accounts. There is an old saying in my business that goes " As Intel goes; so goes the SOX" Many other semis in NON commodity businesses will suffer from the direct distribution model. Book to Bills will become meaningless as a forcasting tool with the direct model. Dell & Compaq will have infinite inventory turns (a function of units shipped) and drive down DSOs(balance sheet productivity) to extract very high returns on invested capital in the $700 PC market place. Many other box makers will adapt to this new model or die. Clark threw out Comp USA's 8% same store sales increase as indicitive of good demand. This was against a very easy comparison in 1996 and same store sales no longer are indicitive of aggregate PC demand at Comp USA, because of the wholesale relationships this company has established over the last 12 months. I will do an extensive chip company earnings review for the thread once most of the companys have reported. This is what equipment investors must follow, NOT the earnings of the equipment companys. Equipment earnings are lagging indicators and are useless in discounting future demand for equipment. Backlogs and Book to Bills will not currently influence equip valuations at this stage of the cycle. Strong equipment fundamentals only postpone the enevitable during cycle peaks. Hope this helps, Jay