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Wednesday, December 10, 2008

Make ‘em squirm

Too big to fail, too fat to live. The automobile sector employs hundreds of thousands of people, and that's just the ones getting paid for not working. They can't get let 'em go under. Conversely, they're totally corrupted. They've spent hundreds of millions of dollars to avoid having to make more fuel efficient cars. They show up to beg for billions in private jets. There's something utterly wrong with the way they think. They think the problem is we're not buying enough cars and not that they're making too many. It's arrogance on a grand scale.

The Bush administration is prepared to give them the bare minimum of what they require to survive. GM has estimated they need 9 billion to get to March. Chrysler says they need 4 billion. Ford says they can get by but they'd really love some money anyway. So they're going to give them 15 billion. This is probably correct – if they gave them the 34 billion they asked for, it wouldn't force much change. By giving them as little as possible, it makes them address the model, not just the cash requirements. It also makes them come back and beg. They should have to report on their progress, on their cost improvements, on how they're going to address a 10 million car run rate instead of the artificial 16 million rate they're geared to.

Really, though, the auto industry suffers from massive overcapacity. They produce better cars than they did. And those cars last longer. This is a great example of the structural problems created by the credit bubble. As financing was so readily available, perfectly good cars were retired because it was so easy to just get another one. The used fleet is enormous and quite young and able. We don't need all the cars they produce and without the easy credit we can't possibly consume them. If they start the credit flowing there again, it will just continue to create unnecessary overcapacity there. This harkens back to the Depression – their business is geared towards a much higher volume than the economy requires due to shamefully lax credit conditions for so many years.

I'm trying to buy a car now. It's an interesting exercise. The car dealers are really suffering. They're still long a lot of 08s and the 09s are not moving either. I was offered an 09 for 1k under invoice price last week. The dealer is already freaking out that he's not going to be able to sell his 09s… and its still 2008. What about the dealers? Does that 15 billion dollar package do anything for them? Probably not. With auto sales down 40% there's probably more inventory than ever and with people hunkered down, the used market is the place they'll turn for bargains. New cars are in trouble till the existing fleet gets older and retired. At least, that's what should happen. Maybe they'll come up with some manipulative stimulus package to get people to keep buying new crap they don't need. That seems to be the overarching intention of the government intervention so far.

The auto executives will be back in 3 months and they ought to be. It'll be Obama's problem and we're probably better served having Obama deal with it versus having the current administration float them for any longer than they have to. These companies need to rationalize their business models, not just feed money into their bloated manufacturing lines and pension funds.

Tuesday, December 9, 2008

Semis rally on bad news

Broadcom, Altera, National Semiconductor, Integrated Device Technologies and Texas Instruments are all up sharply after guiding estimates well below the street. Does this mean it's time to pile in?

The business environment is perhaps the worst I've seen in 25 years of watching the market. Valuations are telegraphing major estimate cuts for next year. And this seems right to me. And today, the market is saying there is enough conservatism in investor sentiment that even 30% reductions in outlooks for semiconductors are acceptable and that these rates of decline are unsustainable. And I agree. They won't see these kinds of drops in their sales consistently.

This move today comes after a 20% rally off the lows in the SOX. We're in the dead spot between Thanksgiving and Christmas. The conference presentations I'm listening to don't suggest any kind of imminent uptick. In fact, it looks like semi inventories were relatively elevated coming into the quarter and the reductions in order patterns are appropriate.

I think semis will start to work higher when order rates begin to pick up. At least, historically, that's what makes them work higher. We are still seeing cuts. We have no clear picture on OEM demand going forward. I suspect that the economy has been hampered enough that Cisco and Dell will see no immediate snap back to business. I think without a snap back in business, the OEMs will force the semis to live hand to mouth – like they've done in the past.

Q1 is typically down for technology for a number of factors but those have become more pronounced in recent years as electronics have become a much larger mix of holiday shopping. I assume no bounce in the early days of January… and I expect further disheartening outlooks from PC and handset makers will keep a lid on any kind of sustained rally. Gross margins literally are just cracking this quarter for many semi companies. There's no sense of a near-term bottom in those and gross margin is what makes these stocks work. Without expanding gross margins you just get more sweat and tears for less profit. I think its too easy for them to rally on these kitchen sink numbers.

I'm a better seller of tech here in general. I think people have the right idea here… I just think they're probably too early and that the group will go lower again once the dour nature of Q1 becomes apparent. I'm not saying this right here is the top… I just wouldn't be buying them here unless I had a very long time horizon… which I rarely do. I think they'll be lower in January.

Monday, December 8, 2008

Texas Instruments (TXN) guides way lower

The street was braced for $2.8ish billion. They guide to $2.3 - 2.5 billion. EPS goes from 30-36 cents to 10-16 cents.

What would you expect? The whole chain has guided lower and most of the OEMs with the exception of the freakishly strong HPQ have also.

Anyway... tomorrow should be interesting.

Molex (MOLX) guides down... so does Altera (ALTR)... so does Integrated Device Technology (IDTI)

Molex makes electrical connectors. They go in all your doo-dads. December revenue is now expected to be 650-670 mil versus prior lowered outlook of 750-800 mil. They declined to give operational profit guidance as they're trying very hard to get costs down and can't tell how successful they'll be yet.

Altera, which a couple of months ago had guided to what seemed like an aggressive midpoint of down 1% now says revs will be down 9-12% for the December quarter.

IDTI says "Order patterns have deteriorated since mid-November as customers become more cautious in the face of a weakening economic environment. As a result of
diminishing demand from customers across all geographies and end markets, we now
anticipate that fiscal third quarter results will be below our prior
projections." Revs are guided to 165-170 mil vs prior 175-185 mil. EPS are guided a nickel lower. This one looks good compared to some of the others -- they're only down 10% at the midpoint versus their prior guidance.

I'm going to post this quickly before someone else blows up.

National Semiconductor (NSM) in-line, guidance apocalyptic

420 mil for revs is in line w/ their guidance. Guidance of down 30% sequentially equates to roughly 295 mil in revs for next quarter, the street has 374 mil modeled. They say gross margins will decline -- no kidding!

Dell trade

I've been waiting for $12 to short Dell. I made some short sales. I've left some room to make more sales at $12.75 should it come to that.

Broadcom (BRCM), National Semiconductor (NSM), Texas Instruments (TXN), Altera (ALTR)

Broadcom (BRCM) has an analyst day. The webcast is available.

National Semiconductor (NSM) reports tonight. As most analog semis have seen big downticks of ~25% to their December quarter outlooks, expect National Semi to guide down. They've got a nasty triple threat in their results this quarter – September, October and November – all of which were the weakest months in the last several years for the industry. It won't be pretty.

Texas Instruments (TXN) will guide lower yet again on their mid-quarter update. Nokia, their largest wireless customer, seems to be in major disarray and Texas Instruments has totally stuffed the channel for a couple of quarters. The downward revision here could be startlingly severe. The street has been moving numbers down to the 2.9 – 3.0 bil area. It could be 10-20% weaker than that without too much imagination stretch. This is the slowest boat in semis and always hits the drawbridge head on when it comes down.

Altera (ALTR) also has a mid-quarter update after the call. No edge there. Obviously it'd be surprising if they didn't lower guidance.

DRAM contract prices lower again

Cribbed from







High Change

Low Change




















DDR2 1Gb 128Mx8 667MHz






DDR2 512Mb 64Mx8 667MHz






Resistance at 9200 in the DJIA

A couple of months ago one of my readers commented that his 3 year old draws lines better than the ones in my charts.

With that in mind, here is the DJIA chart with a few lines that seem to intersect around 9200 DJIA.

I would think they have trouble getting through there initially. And maybe longer-term.

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