It Will Fluctuate
Carl Johnson INFRASTRUCTURE -- Semiconductor International, 6/1/2000
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Frequently I am asked to predict the direction of the market. Most of the time I reply with, "It will fluctuate." I'm not trying to dodge the question by saying this, and I'm not trying to be cute. I've invested for many years, and I always look at the stock market as a market of stocks - not a stock market. In other words, there are times when some areas of the market perform better than others. I probably do not have to tell you that an open-minded approach like this helps insulate a portfolio from constant swings. If you are investing for the long term, there is plenty of time to make money. Losing your buying power during a weak, or flat, quarter is not at all appealing.
How have we weathered the recent storm? At the beginning of this year we decided to play the early 2000 rally more conservatively. This entailed raising our cash level to 30 percent of our total assets. That allocation has helped us during the correction. Our model portfolios have been flat, too slightly up, during the past three months. Some of you may have experienced different results because of the wild fluctuations in the market. Some of you may have been caught on margin or overexposed to areas of the market that fell from parabolic ascents. Hopefully you are still able to invest for the long term.
From a chip business perspective, we believe the good news will continue to roll in as we move into the summer months. This should send the stocks we follow into another rally phase. This rally likely will build a head of steam as we approach July and SEMICON West. From there we are expecting another phase of consolidation and profit taking. Prepare for another bout of selling as the good news is released.
Why do we believe the industry will continue to grow? There are signs that capacity in the chip business remains tight. There is talk that the memory companies are short on inventory. Major companies in the communications and networking side of the business are reporting revenue growth well above 50 percent. We've heard contract manufacturers say they cannot get enough components to fill their orders. Capacity must be installed to meet the growing demand.
At SEMI's Strategic Business Conference in April there was a great deal of chatter about how costs could be pared from the device manufacturing process. E-diagnostics are a hot and far-reaching topic. How do you remove some of the redundant engineering that takes place in the equipment company lab and the semiconductor fab? Can remote diagnostic centers really work? How can the industry better manage maintenance and spare parts? Internet-based management centers are certainly a consideration. No doubt it will take time to get the perfect system in place (perhaps SEMI and Sematech need to take the ball to develop some standards), but from what we heard at SBC significant cost savings can be realized and industry interest is very high.
In sum, I believe there's more good news to come! Don't be surprised if you see a rally starting as we move into the months of June and July.
Carl Johnson is president and co-founder of INFRASTRUCTURE (www.infras.com). He can be reached by phone at 1-972-492-7208.
