Your email address:

Powered by FeedBlitz

Or add to your news reader: Add to My Yahoo! Add to Google

Thursday, April 3, 2008

Gone fishin'

Back next week. Good luck.

A recession would be the good news

Bernanke says we might be in a recession. Wow, thanks for the update, Ben. Recession is a word with a lot of media weight. Its an armchair economist adjective to describe 2 consecutive quarters of negative growth. I'm not worried about a recession -- in fact, I think a recession would be a good outcome.

What the economy faces is in fact far more ominous -- we may be looking at multiple quarters of credit contraction throughout the financial system. Real estate and mortgages get the most play in the media but the creep in credit tightening continues.

NYC private schools saw their borrowing costs triple because the auction rate market pretty much fell apart. Three superdome projects saw the same. The Moynihan stadium plan fell out of planning because the funding costs have become too onerous to pursue. These gaps in the auction rate market not only derail the projects they're tied to, they also keep investor's capital tied up as there's no incremental buyer to take the held auction paper.

I believe there is no quick fix for the excesses of the last several years. What will fix these problems are tighter standards and time. As the housing market has been brewing in earnest since the early part of this millennium and kicked into high gear in 05/06 and prices in real estate have only begun to decline this year by low double digits, I expect this contraction in housing to continue for far longer than industry pundits and talking heads will ever dare to suggest. If this really was a bubble, a 10 or 15 percent correction in prices is small potatoes.

The real trouble still lies ahead in these write-offs. When a bank takes a mortgage and declares it worthless, it now has a cost of zero on that mortgage. The bank now has incentive to foreclose as its like they're buying the house for nothing. I think this is why ARMs are floating above fixed rates -- the banks don't want people to get out, they can't sell the mortgages but they can sell the house. If their cost is zero and financing for home buyers is much tighter, what will hold prices up?

A recession would be the good news.

[Added links 4/3/08 3:31pm - rh]

Wednesday, April 2, 2008

Research In Motion (RIMM) 4Q:2008 results

As expected (not just by me according to a couple of guys I spoke to before they reported) the numbers were better for the current quarter and the guidance is solid and above the street at 82-86 cents, well above the 75 cent consensus estimate. RBC pretty much hit the nail on the head with their call on March 28th.

Its not a cheap stock but its also one of the few unblemished stories out there. The economy may catch up with them but its going to be hard to know if thats happening as long as the new products keep flowing. Obviously, I'll be keeping an eye out for signs of weakness there. RIMM should continue to be strong on a relative basis to the rest of technology. It's one of the only stories a portfolio manager can feel comfortable owning and should (and does) trade at a premium because of that.

Stay with RIMM.

Research In Motion (RIMM) reports tonight

RIMM announced yesterday that the Verizon Curve and Sprint Curve will ship in May. The 9000 series may have to wait for the following quarter, but that lends more visibility to the story. Admittedly, the iPhone 3G is going to put some competitive concern out there. Historically competitive factors have made RIMM push very hard at the enterprise level to win all the business they can quickly and make it more difficult for competitors when they get to market.

I worry that the economy can bite them in the ass as they've got a lot of exposure to the financial vertical... but that hasn't been apparent in the survey data or the reported numbers so far. As long as the new product rollouts continue on plan, I don't see signs of a major stumble.

I expect RIMM to beat numbers and guide higher tonight. I think the stock is cheap relative to its growth rate and the company deserves a premium multiple relative to the rest of the market -- they're growing at nearly 100% and still enjoy market leadership in the smartphone market, the fastest growing and smallest segment of the cell phone business and yet the stock trades at 35* next year's estimate. My guess is its hard to get the stock above 40* next year's estimate in an uncertain environment like this one. On the current numbers, before the raise I expect, that would get you to $140. If I'm right about the guidance, the stock has room to move higher than that.

Tuesday, April 1, 2008

Hynix to cut NAND production

Digitimes claims Hynix is going to terminate 5% of the world's supply of NAND over the next 2 months by cutting production. Three days ago they were dismissing rumors Hynix was seeing increased buying from Apple. I think Samsung is the only one seeing any pulls from Apple right now and it's because they've got the 3G iPhone design where production is ramping. That can change... Apple hasn't bought any iPod NAND in a while. They'll probably need some soon.

This reduces overall NAND supply so people will think this is good for Sandisk. It's not really. You've got a weak retail environment. What this is more likely to do is increase the cost of raw NAND near-term, which hurts product gross margins for Sandisk (they buy raw NAND and package it into cards). Sandisk needs a strong retail environment and a loose supply market to really outperform. This won't get them there any time soon.

Stock might be a short here at $24.7... I don't think the quarter is going to be pretty.

For love of money

Last night I didn't really want to watch that show. I thought about skipping it but I figured I'd feel uninformed when talking to others today... I figured it was going to come up even if I dodged it. It occurred to me that if there was a 1 hour special on Seth on CNBC, he would want me to watch it. He'd be hurt if I didn't.

I had no idea he was in the Wall Street anniversary edition. He must have LOVED that. He was such a movie fan. He used to turn to me and recite some obscure movie dialogue and ask me what it was from. The answer was almost always The Godfather, Platoon or Wall Street.

He gave me a good job and a lot of responsibility. He yelled at me sometimes. He let me yell back, too. He paid me a lot of money. After I left Circle T, we still talked. I miss him. He was a good friend.

Back to work.

Thornburg averts bankruptcy

At no small cost to existing shareholders, Thornburg scraped together enough money to avert bankruptcy. Not much to say here but since I've been thumping them from the high single digits all the way down I can't let it go by unmentioned.

Monday, March 31, 2008

PC components weaker in March; cells bounce off very low February

Seagate blasted pricing down 15% in 250-320gb hard drives in the last 2 weeks of the quarter, according to Baird late last week and Wachovia today. Inventories are running in the 7-8 week range whereas industry guidance is roughly 4-6 weeks. Both Western Digital and Seagate raised guidance intra-quarter, so they've both got to be somewhat surprised by the downturn. That said, hard drive stocks are clearly telegraphing number reductions going forward as Seagate and Western Digital trade at 6* next year's earnings estimates. I'd be looking to buy the lowered forecasts when they come.

Notebook continues to be strong and desktop continues to be weak. Margins are generally better on notebook components which continues to bolster profits somewhat for component suppliers. Desktop feels very weak. Financial companies are an important vertical for desktop sales. The layoffs and frozen credit markets are certainly constraining IT spending habits there. Makes sense. Every time a company lays a guy off the IT manager redeploys his desktop to someone else either within the organization.

In cell phone components, February was suppressed by snowstorms in China. They bounced afterward but I don't think it was enough to keep June numbers from coming down. I stay negative on Texas Instruments and National Semiconductor.

Memory pricing still stinks. Elpida is talking about raising prices on DRAM. I don't see how that's going to work. A number of DRAM manufacturers have been holding inventory off the market, waiting for better pricing. That scenario tends to lead to a spill lower. Most DRAM manufacturers are in the red here and have been subsidizing the DRAM business with other product lines. As the other product lines are likely getting weaker, expect DRAM inventory write-downs. Micron is apt to remind investors that memory is a supply driven market. There's still too much supply. Expect further capex cutbacks as we move through the year. I remain negative Lam Research, Mattson, KLA Tencor, Varian Semiconductor.

Starting late this week we're eligible for earnings pre-announcements. I don't expect a lot of good ones. The question is more of what's factored into stocks. The semiconductor index is down 40% from its October high. Numbers are clearly going lower. Valuations look very compelling but business looks weaker. My guess is you buy bad news when it becomes a headline but there's time.

Blog Archive