It's a Soundbyte World

Carl Johnson, INFRASTRUCTURE -- Semiconductor International, 11/1/2000

Q: How have you been?

A: Fine. It's been really busy here. Work seems to come out of the walls when the markets and the semiconductor industry are in turmoil. I have installed an earpiece for my phone that can only be detached when I shower.

Q: The markets have definitely been in turmoil. What are you going to do?

A: Right now, nothing. I have been calling for a Fall Rally but it appears Wall Street is going to beat the semiconductor stocks to a pulp before they bounce. I have no idea how much further they could drop.

Q: Is the drop justified?

A: For certain situations, yes. For many, there probably is not much downside risk. We're looking carefully at the companies we follow and would like to apply our cash. Unfortunately, we've tried to catch a few bottoms in the last few weeks to no avail. We are going to wait for signs that things are stabilizing.

Q: Do you have any thoughts on the chip sector?

A: Yes. I think the sector is still in an up cycle. It appears there is a digestion phase taking place in certain segments. Ubiquitous computing is still driving the industry forward and will for the foreseeable future. The communications sector still looks decent to us even though there may have been some inventory stockpiling. The front end of the equipment sector should have a very good quarter - a few companies are not executing as well as we like, but we have to live with it. So far, we have not seen order push-outs and order cancellations for front-end tool orders. In fact, we are hearing from a few players that orders are actually accelerating.

In the back end, there is still a digestion phase taking place but that will change as front-end tool installations come on line. Some of the back-end stocks are selling at ridiculously low valuations. It might take some time for them to rally, but they seem to have limited downside risk from the current levels.

Q: Doesn't that seem a little rosy considering the way the market is acting?

A: We have been saying that order growth would slow in the last half of this year but that it would not mean the end of cycle. We did not expect stocks to react so negatively to this slower level of growth. The supply-chain issues we have mentioned several times have had a great deal of impact on the ability to deliver product and meet announced earnings guidance. We've seen solid bookings, but many are unable to get product out the door. Many companies are now being forced to announce to the market that their previous guidance was too rosy. Wall Street is punishing them for being too optimistic.

Q: What else have you been doing?

A: Between phone calls I have been working on reports for our readers. Fortunately, I have found a way to detach myself from the phone. No, that does not mean I work in the shower.

Seriously, it has been very difficult to put a cogent outlook together, given the way the stocks have been falling. It has become a moving target. We're optimistic on the longer-term view, but the near-term action in the market is very frustrating. I'm a patient guy but I have to say that this correction is really testing my character. [sighs]

This, too, shall pass.