― THE FRIDAY LETTER ―
(e-mailed weekly, from Gilder Publishing,
for friends and subscribers)
| http://www.gilder.com/ | Issue 190.0/February 25, 2005
SIGN-UP A FRIEND FOR FREE!
Click here to add a friend to our Friday Letter mailing list.
Friday Feature / The
World's Preeminent Tech Company
▪ Friday Bonus / Qwest Isn’t Giving Up the Fight
▪ Friday Bonus II / Inflation and the Dollar
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.
Steady On Intel
Qualcomm’s Very Attractive Valuation
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 sizzling 277%!
Sign up now for a free 30-day 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:
FREE Trading Game and Market Mastery
Reports from World Renowned Trading Coach and Market Wizard Dr. Van K. Tharp
Test your skills by playing the Secrets of The Masters Trading Game and discover how to manage your money effectively like the world’s top traders!
You are invited to download this free trading game (first three levels) and also receive three of Dr Tharp’s Market Mastery Reports as an added bonus (valued at $60.00) by going to http://www.iitm.com/free.htm
Dr. Tharp has spent over 20 years studying and researching many of the top traders and investors in the world. From these studies (of over 5000 people) he has developed a model for successful trading and investing from which other people can adopt and learn.
Learn more and download your game and reports now at http://www.iitm.com/free.htm
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:
MCI Bid Expected By Week’s End
Senate Panel To Examine Telecom Mergers
For Qwest/telecom section: this could be the main article:
Qwest’s Desperate Deal
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:
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:
Jan Durable Goods Orders
Cap Equipment Market Expected To Fall This Year
Evans: Time To Take A Stand On RFID
Shoppers Jam Virtual Aisles
Falling Off The Wagon With WiMax
A Story Goes With It
Whither The Wall Street Journal?
Beware Investor Boredom
SIGN-UP A FRIEND FOR FREE!
Click here to add a friend to our Friday Letter mailing list.
FRIDAY LETTER STAFF
Mary Collins / email@example.com
Sandy Fleischmann / firstname.lastname@example.org
Friday Letter is mailed each week to more than 150,000-plus subscribers and
friends of Gilder Publishing, including industry leaders, financial
professionals and individual investors. For information about advertising,
contact Mary Collins at email@example.com
PLEASE NOTE: The appearance of an advertisement in the Friday Letter does not indicate an endorsement for the product and/or service by George Gilder, Gilder Publishing LLC, or the Friday Letter staff.
Send letters to the editor to Fridayletter@gilder.com
For technical problems, please e-mail Fridayhelp@gilder.com
Gilder Publishing, LLC
ATTN: Friday Letter
291A Main Street
Great Barrington, MA 01230
The Friday Letter is published weekly for subscribers and friends of Gilder Publishing. If someone you know would enjoy it, please feel free to forward a copy.
Gilder Publishing makes the Friday Letter available for free. To help defray some of the costs of producing this information on a weekly basis, we will from time to time be sending you offers from companies we think you'll be interested in. These offers will not come more than once a week. If you do not wish to receive this related information, please opt out of this process at the link below and we will not share your name with companies outside of Gilder Publishing.
To SUBSCRIBE please visit http://www.gilder.com/
To UNSUBSCRIBE please go to http://www.gilder.com/fridayletter/unsubscribe.php
Trouble subscribing or unsubscribing?
Copyright 2005 Gilder Publishing LLC