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

To: shane forbes who wrote (5469)	5/19/1998 9:31:00 AM
From: Mason Barge	Read Replies (3) \| Respond to of 10921

Re BTB: I don't get Dick Greene's comment. He has always seemed to me to be Kurlak's doppelganger, i.e. downplaying bad news and emphasizing good. To say the deceleration in BTB is slowing may be true, but it doesn't really make a meaningful statement due to the nature of the BTB. The BTB is a geometric rather than an arithmetic progression. It isn't based on a benchmark price, but on the previous three month's bookings. This is doubly complicated by the three-month coverage, so that a BTB of .79 following .80 implies continuing acceleration of declining bookings. If this makes any sense so far, you have to consider that a comparison of rate of decline in month to month BTB ratios is a second derivative. Bookings are currently declining at over 20%. This is a predictor of future revenues and the current prediction is a "nose-dive". Continued BTB rates under 1.0 would result in a crash as even a BTB of .99 predicts declining revenues. A decline from .80 to .79 means that the rate of dive (first derivative) is increasing. This would be the traditional meaning of "acceleration" and the BTB as of May 1 showed, not a deceleration, but an acceleration of the rate of revenue loss. In other words, 1) the direction of the aircraft is down, 2) the rate of descent is increasing, but 3) the decrease is not as big as it was last month or the months before. The degree of change in the BTB is thus a second derivative more akin to a logarithmic rate of change. The point being, where the rate of decline is still advancing, I think it's simply wrong of Greene to imply, optimistically, that the decrease is slowing. The rate of decrease is still growing. Kurlak is no hero of mine, but his observation at least attempts to look at an original source cause . He certainly has something useful to say, since it's hard to imagine AMD or the Cyrix operation of Nat'l Semi booking a bunch of equipment in the near future. In fact, if AMD needs help (which may be inevitable given the expense of the Dresden fab) there will be some sort of shakeout in the MPU industry. On the other hand, some of the problems in the processor industry have already been factored into the semi-equipment BTB, as Intel very intelligently has cut back its future capacity plans for lower-end chips significantly. So some of the bad news is already behind us, in effect. There is an article in DJ (no use to link it as you have to be a subscriber, but it's in SmartMoney) that claims, with some decent argument, that semi equipment issues are overpriced because a recovery has been fully priced in. I think Infrastructure makes, basically, some of the same analysis. Funds, having seen the rocketing prices characteristic of recoveries in the equipment sector, have seen past the current quagmire to an expected period of sharp growth in late '98 to early '99. The funds are, basically, thinking that the cycle is akin to a consumer cyclical cycle and will automatically turn back up. You can't simply say "the sector will recover" and make money. A delay in recovery (if these analysts are correct) would hurt share prices. I remain sceptical and out of the sector, due to the possibility of even further deterioration in the Japanese economy and the ongoing chip glut for lower-end processors and DRAM, which appears to be right in the middle of the growth sector for PC's, i.e. the chips appropriate for internet appliance PC's. I could easily be wrong, but we all have to invest our money and make decisions. I'm really looking for further deterioration in the sector of about 15% before I jump in.