greg s: Re: Semi stocks
I believe that they are basing now, along with the rest of the market. In general, many stocks have returned to pre-bubble valuations, and the recent market activity seems to indicate that a bottom is at least being explored.
As for turning up, obviously, the real driver for significant upward movement will be one or both of the following: Better forward visibility and/or sustained earnings growth. I will not try to address the entire semi sector, but instead will concentrate my opinions on the PC sector.
Clearly, the primary reason for the depressed PC market is the lack of growth. I attribute that to the following:
1) Late or non-existant upgrade cycle. Others have alluded to this, and I think it is a real obstacle. The last major upgrade was in late 1999 and by historical measure, we are well past due for another. However, many companies are reluctant to do so for several reasons. First, 3 year old hardware is still sufficient for most office applications. After all, what most business PC users do is e-mail, internet and word processing. I venture to say that if you were to place a PIII 800 machine and a P4 2.8 machine in front of the typical office worker, ask him to use each machine for the above applications and then tell you which one is faster, it would be hard to tell. Even if he could tell, I doubt that the difference would be significant enough to warrant an upgrade.
My organization is a perfect example. I have 280 employees and about 130 desktops and 20 mobiles. Most of those are at least 3 years old but, despite the protestations of my IT manager, I will not upgrade. Most of my users only do e-mail and light word processing. There is just simply no need to upgrade.
Second, there simply is not enough discretionary funds for IT departments for upgrades. Most companies have felt the effects of the recession, and as many of us know, IT budgets are among the first to get cut.
2) Slowed global penetration. In the US, the PC market is near saturation. I seem to recall that a large percentage (80 plus, if I remember correctly) of PC sales were to people who already had computers and were upgrading. There are few computers being sold to newbies anymore. As hardware development continues to outpace software requirements, the number of upgrades will decrease. So the real growth market is global growth. That seems to have stalled as the global economy is no better than ours at present.
3) No killer apps. This was hinted at in both 1 and 2 above. Hardware development is dramatically outpacing software requirements. Most OSs and software will run just fine on a 3 year old computer. There are very few software packages that challenge current systems.
So there are a lot of reasons for the current PC doldrums. However, I do believe that the first hint of sustained economic growth will drive and upgrade cycle - even though the hardware might still be sufficient to be productive. I believe that the main upgrade driver will be that most managers do not like to have old equipment, and as drives, monitors, and peripherals begin to fail, it will quickly become apparent that upgrade is a better option to repair. So, I look to see a significant upgrade cycle begin early next year.
Another contributing factor to an upgrade cycle is that, for the most part, businesses have missed out on an entire Moore's Law cycle. I suspect that like my organization, most businesses have sub-Gigahertz systems as the majority. By early next year, systems at over 3 GHZ will be commonplace. Many companies will want to catch up.
Finally, if there is an upgrade cycle looming, I think it will be a big one. Because of Y2K, most companies did their last upgrades at roughly the same time. I believe that synchronization will survive into the upcoming upgrade cycle.
AI
