Tech Troubles Aren't Over - Barron's

Tech troubles aren't over, Barron's Eric Savitz says. While it would be great to put recent woes behind us, layoffs have become commonplace among tech firms, followed by multiple downward earnings estimate revisions, sometimes accompanied by fresh layoffs. The culprits: waning consumer demand, huge cutbacks in IT spending, tight credit conditions, a strong dollar, and massive corporate cost-cutting.

Market-neutral tech portfolio manager Pip Coburn says he's having no problems coming up with short ideas - in which he tries to focus on sectors which are weak even after factoring out the overall slowdown: "I want ideas where the business model is going to implode anyway," he says.

Coburn is bearish on chip equipment makers as the semiconductor industry hits a wall. Moore's law, which dictates chip speeds will double every 18 months, has collapsed, he says.

Another sector worth shorting: broadcast TV, as watchers abandon scheduled programming and watch video on the web.

More shorts: Lexmark (LXK) - faces a trend toward using generic cartridges. Blue Nile (NILE) - too much competition. Shutterfly (SFLY) - prices are collapsing. Fairpoint Communications (FRP) - he doesn't like wireline-centric telcos.

On the long side, he likes Cisco Systems (CSCO) which will benefit from online video. NICE-Systems (NICE) - which records phone conversations for call centers, a great play on increased focus on regulation and monitoring. Apple (AAPL) - iTunes locks users into buying more iPhones.

Comments

[Scalpulator:]

Does anyone really believe that an iphone will be profitable at $99 during a 100+ year flood?

2008 Dec 14 04:49 PM

[Forex Tradi...:]

I think the business side of demand is going to struggle but I still anticipate the consumer side of demand to hold up especially with Christmas shopping boosting the current quarter.

2008 Dec 14 04:52 PM

[Nikola:]

The flood is yet to hit tech. Everybody's been focusing on financials (subprime exposure), auto companies (price of oil, cash flow), and retailers (consumer, layoffs).

But if you talk to people in tech, you will see that the flood has reached their doors, and the first thing corporations are cutting, in huge numbers, is tech. Especially these days when people are making 09 budgets.

It's gonna be another tech slaughter in 09, but this time there was no real bubble, and tech will just be collateral damage.

See in you Web 3.0.

2008 Dec 14 06:10 PM

[Timeline St...:]

Hey Scalpulator - Although iPhones sell for $199/$299 via AT&T, Apple recognizes revenue estimated at $500 to $650 for each iPhone they sell through AT&T carrier subsidies. Thus, the $99 price is not that much different from their current price.

iSuppli has done extensive iPhone teardowns to determine accurate costs, and they estimate that Apple pays about $150 to $170 in costs per iPhone.

So, the correct answer is, yes they will make a lot of profit. And yes, they will sell a lot of iPhones. Don't believe the sceptics who think that every product is affected equally due to recession. There are so products that, while not exactly 'recession proof', are at least recession resistant.

PS What's the point of this article in general? Why can't I just read the original Savtitz article? There's nothing new or novel here, just a re-hash of what someone else wrote.


On Dec 14 04:49 PM Scalpulator wrote:

> Does anyone really believe that an iphone will be profitable at $99
> during a 100+ year flood?

2008 Dec 14 09:54 PM

[tginomorebush:]

eric savitz is an idiot analyst who is paid to decimate sectors and stocks!

2008 Dec 15 08:57 AM