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― THE FRIDAY LETTER ―
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for friends and subscribers)
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| http://www.gilder.com/
| Issue 190.0/February 25, 2005
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HEADLINES:
▪ The
Week / George
Gilder on Chip Inventory and Pricing
▪
Friday Feature / The
World's Preeminent Tech Company
▪ Friday Bonus / Qwest Isn’t Giving Up the Fight
▪ Friday Bonus II / Inflation and the Dollar
▪ Readings/
The
Week/
George Gilder on Chip Inventory and Pricing
‾‾‾‾‾‾‾‾‾‾‾‾‾
Excerpted from posts to the Gilder Technology Report subscriber-only
message board.
GTR Subscriber (2/22/05): Can we one day break the chains that
bind us to the idea of every chip stock is tied up in the semi cycle? The
market for high-bright LEDs is doing well. Look how IRF has transitioned from
being dependent on CSCO boxes and computers to power-chips in many other
things. Yet when some big analyst comes out with a "sell the chips"
call because of inventory or pricing issues at Micron … CREE, IRF etc … take a
hit for days.
George Gilder (2/22/05): Good point. The chip business is not one
but forty industries. Some chip companies, such as Texas Instruments
(TXN) and Taiwan Semiconductor (TSM), are in all forty. Some such as Qualcomm
(QCOM) are in one. Intel (INTC) is in about five. CREE (CREE)
is in several. Micron (MU) is in a couple. To sell CREE because of a
decline in the market for DRAMs is ridiculous. Lower DRAM prices are good for
CREE and for Intel and most of the semiconductor industry. Lower DRAM and Flash
prices are crucial to the prospects of Apple (AAPL) and Dell
(Dell) and Lenovo. As the price of Flash dropped, it enabled the new
shuffle Ipod to reach its elastic moment; it enabled digital cameras to become
consumer products. It made the Apple Mini feasible (I bought one today and
about half its cost was memory).
More than of inventory overload, lower chip prices are a sign of
technological progress. Moore's law
works. Lower chip prices mean cheaper chip-based systems and in highly elastic
consumer markets they signal larger sales of such products as computers,
teleputers, media players, personal video recorders, game machines, digital
cameras, camcorders, high-definition displays and other devices based on
sophisticated one-chip systems that supply most of the functionality of the
product and capture much of its worth.
The so-called down cycles in commodity semiconductors are often
good for the commodity producers themselves, such as Micron, Seagate
(STX), Samsung, Toshiba, and SanDisk (SNDK), which gain
share against all the opportunist players in the field, who are driven out. In
any case, commodity-price down cycles are the source of the upcycles in systems
and makers of systems on a chip. Hence our list is full of designers of single-chip
systems, from Qualcomm and Texas Instruments to EZchip (LNOP) and NetLogic
Microsystems (NETL), from Altera (ALTR) to Synaptics (SYNA).
And as Gilder/Forbes Telecosm 2004 speaker, Paul McWilliams,
points out, the chip industry has never had a down cycle in units. Measured more accurately in transistors
rather than packages, semiconductors double every 18 months.
To read more on chip cycles and the state of the semiconductor
industry logon to the George Gilder’s subscriber-only message board at http://www.gildertech.com.
Related reading:
Analysts
Steady On Intel
http://www.reed-electronics.com/electronicnews/article/CA506287?ref=nbra
Intel
TV
http://www.redherring.com/Article.aspx?a=11338&hed=Intel+TV
Samsung
vs. Toshiba
http://www.redherring.com/Article.aspx?a=11329&hed=Samsung+vs.+Toshiba§or=Industries&subsector=Computing#
Qualcomm’s Very
Attractive Valuation
http://www.forbes.com/markets/2005/02/24/0224automarketscan02.html?boxes=popstories&boxes=custom
Gilder Telecosm Prediction
Yields 50%+ Return in Four Months!
Paul McWilliams, editor of Next
Inning Technology Research, told Gilder/Forbes Telecosm Conference attendees
last fall his two favorite picks for 2005 were Harmonic (HLIT) and Packeteer
(PKTR). Since that announcement, they
have returned 53% and 49% respectfully.
Calls such as these have led the Next Inning portfolio to again beat
the market; posting year to date gains of 15%+ so far in 2005 while the
NASDAQ wallows in red. Led by twenty-plus-year
semiconductor industry veteran McWilliams, Next Inning provides clear,
reasoned, and well-researched analysis, cutting through the hype to bring
subscribers the most up-to-date investment insights in the world of semis and
techs. Since inception in 2002, Next Inning's model portfolio has returned a
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trial to Next Inning and learn which stocks are ready to soar next! |
Friday
Feature/ Karlgaard: The World's Preeminent Tech
Company
‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾
Google and Wal-Mart are the business
world's version of yin and yang. Google is a hypergrowth, high-revenue, wildly
high-margin company. Three thousand employees produce annual sales of $5
billion (at the current run rate), or $1.67 million per worker. Cash flow is
north of $500,000 per worker per year. The typical Google worker possesses an
IQ high enough to boil water. Half hold advanced degrees in science or
engineering, most from elite universities. Google leaves no stone unturned in
its pursuit of brainiacs, even asking to see prospects' SAT scores.
Wal-Mart is the opposite of Google. It is the world's
largest company by sales--$285 billion--but its profit of $10 billion is in
line with low-margin retail. Wal-Mart sends the world's largest work force into
battle, 1.5 million (few of them SAT superstars) who generate $190,000 in sales
apiece. Cash flow and profits per Wal-Mart worker are puny--only $16,000 and
$6,700, respectively, or about 3% of those of the Google counterpart.
Google and Wal-Mart have become huge successes in vastly
different ways. But the yin and yang have this in common:
• Each company has a simple mission. Wal-Mart's is
"always low prices." Google's is "to organize the world's
information and make it universally accessible and useful." These
companies know who they are.
• The brand and the mission statement of each are aligned.
Picture Google and Wal-Mart in your head. There's no confusion about what these
companies do.
• Both companies are technology leaders. The previous editor
of FORBES, Jim Michaels, likes to call Wal-Mart the world's preeminent tech
company. It pioneered the use of bar-code scanners, slick supply chains and
inventory management tweaked to local purchasing preferences. The Bentonville,
Ark. giant never sleeps. Now Wal-Mart is pushing into RFID chips. Wal-Mart's
aggressive use of technology puts the lie to a recent Harvard Business
Review article, "IT Doesn't Matter," that says it's okay to sit
back and let others lead. Google, meanwhile, continues to attract the best tech
brains in Silicon Valley.
• Both companies exploit the cheap revolution. Google's
search engine runs on 100,000 cheap servers and a form of free Linux software.
Wal-Mart searches the planet for low-cost production. It buys 10% of the goods
China exports to the U.S
Read Rich Karlgaard’s Complete Article:
http://www.forbes.com/forbes/2005/0314/033_print.html
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Friday Bonus
I/ Qwest
Isn’t Giving Up the Fight
‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾
Qwest isn’t giving up the fight to acquire MCI in part because MCI
shareholders are in such open revolt over MCI’s quick acceptance of Verizon’s
lower bid that four of them are suing the company. Qwest, which is in communication
with the renegade shareholders, is not expected to submit a new bid, preferring
instead to wait and see how the lawsuits play out. According to a story in the Financial
Times, the shareholders are seeking to have the suits granted class-action
status. They are charging that the quick acceptance by MCI represented a
management breach of “its fiduciary duty.”
Read the Complete Commentary:
http://www.redherring.com/Article.aspx?a=11319&hed=TechSpin%3a+Mutiny+at+MCI
Related
reading:
New
MCI Bid Expected By Week’s End
http://www.wirelessweek.com/index.asp?layout=newsat2direct&starting=6&pubdate=02/24/05
U.S.
Senate Panel To Examine Telecom Mergers
http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh80577_2005-02-24_16-58-01_n24136930_newsml
For
Qwest/telecom section: this could be the main article:
Qwest’s Desperate Deal
http://www.forbes.com/home/technology/2005/02/24/cx_de_0224qwest.html
|
Announcing … The 9th Annual Gilder/Forbes Telecosm Conference: September 27 – September 28,
2005 The Resort at Squaw Creek, Lake Tahoe
|
Friday Bonus II/ Inflation and the Dollar
‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾
Brian Wesbury (2/22/05): Like any other market, the value of the dollar
is determined by global supply and global demand. What is different is that the
Federal Reserve has a monopoly on the supply. While small amounts of actual
cash (relative to total supply) circulate outside the country, or are used for
illegal activities, most dollars never leave the US banking system. The Fed
controls supply, while demand is determined by US investment opportunities and
growth.
Three
things have happened in recent years. First, federal spending has increased
dramatically. Second, government regulation of business has increased. Third,
Fed policy has been highly accommodative.
Read
Wesbury’s Complete Commentary:
http://www.gkst.com/uploads/mondaymorning-documents/9VxdWg20050222085143.pdf
Related Reading:
George
Gilder (2/23/05): The
Fed controls the quantity of money and it controls the Fed Funds rate, two
different mechanisms that determine inflation and the value of the dollar. The
dollar is now weak against gold and other currencies. That means there are too
many dollars. At the same time, tax policy has taken a dive as Bush seeks an
accountant"s solution for Social Security at the cost of the
entrepreneurial conditions that will produce future goods and services for
retirees. At a time when the payroll tax should be abolished as a burden on
growth and employment and an incentive for early retirement, Bush is talking
about raising the tax massively. Meanwhile, tech and telecom policy fellates
and Congress blames China for the giant sucking sound. I hope these guys get
their act together. But it goes far beyond monetary policy. Everyone in the
Administration is preoccupied by the war.
More Related Reading:
Wesbury:
Jan Durable Goods Orders
http://www.gkst.com/uploads/datawatch-documents/8FpdVw20050224103057.pdf
_______________________________________________
Readings /
‾‾‾‾‾‾‾‾‾‾‾‾
Cap
Equipment Market Expected To Fall This Year
http://www.reed-electronics.com/electronicnews/article/CA506384?nid=2019&rid=2052959400
Bob
Evans: Time To Take A Stand On RFID
http://www.securitypipeline.com/showArticle.jhtml?articleId=60402597
Online
Shoppers Jam Virtual Aisles
http://news.com.com/Online+shoppers+jam+virtual+aisles/2100-1030_3-5589053.html
Mr. Fixit
http://www.embedded.com/showArticle.jhtml?articleID=60403234
Falling Off The Wagon With WiMax
http://www.mobilepipeline.com/60403189;jsessionid=553D0N55BEA0UQSNDBCSKH0CJUMEKJVN
A Story Goes With It
http://www.forbes.com/business/forbes/2005/0228/030.html
Whither The Wall Street Journal?
http://www.wired.com/news/culture/0,1284,66697,00.html
Beware Investor Boredom
http://www.alwayson-network.com/comments.php?id=8742_0_14_0_C
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