Marc Courtenay's  Instablog

First let's start with a very cool chart. It shows us the Dow Jones Industrial Average (DJIA) performance if we valued that performance in gold grams. It speaks to the erosion of the value of the dollar and what the DJIA is really worth in terms of gold.
DOW's 10 Year Performance:
Many thanks to our friends at PricedinGold.com (pricedingold.com) for allowing us to share this with you. They have many other great charts to show both the stock market's and commodities' "true value" when priced in gold.

That's why I've said for years everyone should have purchased at least a gold ETF like GLD at some point and held on to most of it. Is it too late? Probably not in the long-run, but that's for another story and another day.

That being said, most of us who like to buy stocks and commodities when they are "on sale" and at bargain-basement prices are holding on to cash. So are two technology companies worth looking at.

Taiwan Semiconductor Manufacturing Company (NYSE:TSM) which engages in manufacturing, selling, packaging, testing, and computer-aided designing various integrated circuits and other semiconductor devices, as well as manufacturing masks.

It offers a range of wafer fabrication processes, including processes to manufacture complementary metal oxide silicon (CMOS) logic, mixed-signal, radio frequency, embedded memory, BiCMOS mixed-signal, and other semiconductors.

Well, they are sitting on a sheet-load of cash. In fact, it's over $5.6 billion in total cash which includes almost $2.5 billion of levered free cash flow (ttm) and only $214 million in debt. Their profit margin and operating margin (ttm) are around 26% in spite of the worldwide economic slump.

As Taiwan grapples with an economic slowdown, a new administration is pursuing unprecedented trade deals with arch-rival mainland China, a move necessary for Taiwan's future but also threatening its current de-facto independence.Despite its small size and a population of just about 23 million, the island has managed to become the world's top manufacturer of semiconductors, notebook computers, and flat-panel screens, as well as the planet's No. 2 chip designer, according to a recent report from MarketWatch.

And thanks to a recent settlement, TSM will now own close to 10% of Semiconductor Manufacturing International Corp. (NYSE:SMI) a Shanghai, China which, together with its subsidiaries, engages in the computer-aided design, manufacture, packaging, testing, and trade of integrated circuits.

It provides wafer fabrication services for various devices that include logic technologies, such as logic, mixed signal, RF, and high voltage circuits; memory technologies comprising dynamic random access memory, static random access memory, flash, and electrically erasable programmable read-only memory; and specialty technologies consisting of liquid crystal on silicon and CMOS image sensor.

The company also manufactures logic, mixed-signal and radio frequency, high voltage, memory, and specialty semiconductors, as well as manufactures and designs semiconductor masks. In addition, SMIC provides various services, including libraries and circuit design blocks, design support, mask-making, wafer probing, gold/solder bumping, redistribution layer manufacturing, assembly, and testing.

SMI is trading for only 70% (.69) of its Book Value, but the big story is that SMI will pay TSM a nice cash settlement paid over 4 years and a big chunk of SMI shares. This just makes TSM a stronger, financially healthier company with lots of opportunities in their business to expand throughout mainland China and Asia. and TSM is currently paying a dividend with a yield-to-price of around 3.4%.

The other company that has my attention, although it certainly isn't cash-rich, is Brocade Communications (Nasdaq:BRCD). My friend Louis Basenese, the Senior Analyst at The Oxford Club who is also the editor of the Takeover Trader shared the following with me on Friday that says quite a bit about the BRCD situation:

"This week's announcement that Hewlett-Packard (NYSE:HPQ) is acquiring 3Com put a dent in shares of Brocade Communications Systems (Nasdaq: BRCD). Everyone expected HP to buy Brocade instead.

"But don't think because HP passed, Brocade's attractiveness changed one iota. If anything, the dip in prices makes a deal more compelling for Oracle (ORCL), Dell, Juniper Networks (JNPR) and other potential suitors. They can now scoop up the maker of networking gear for 13% less.

"Granted, Oracle said it's not interested either. But a cheaper price can always change a buyer's mind. And playing hard to get could be a negotiating tactic. Time will tell.

"With over $260 billion in cash on the collective balance sheets of technology companies, and a mighty consolidation wave already gripping the industry, Brocade remains a prime takeover target."

"H-P acquiring 3Com [is] a negative for switching and routing competitors long term," wrote Jayson Noland, an analyst at R.W. Baird, in a note released this week.

"Implications are most negative for Brocade given speculation H-P would acquire it, plus increased competition for the [company's] Foundry portfolio."

Brocade is a longtime partner of H-P, which rebrands the company's storage switches, although there had been talk that of a similar deal for Brocade's IP networking products.

"H-P buying 3Com takes a Brocade IP OEM deal or acquisition off the table," wrote Noland, but adds that this could also strengthen Brocade's OEM relationship with blue-chip company IBM.

Some analysts are going to continue to spin the H-P rejection of BRCD in a negative light, but there's plenty of reasons to believe there is light at the end of the tunnel for a future benefit for BRCD.

The storage maker has been on something of an upswing recently, raising its 2010 revenue forecast.

"We believe that Brocade will continue to be H-P's preferred supplier for storage switches," wrote Kaushik Roy, an analyst at Wedbush, adding that there are still gaps in H-P's portfolio.

The tech bellwether, for example, lacks a switch offering Fibre Channel over Ethernet (FCoE), which is seen as key in companies' efforts to reduce cabling. "H-P will continue to rely on Brocade's FCoE products to offer converged Ethernet solutions," said Roy.

Even with the 3Com bombshell, the analyst says that Brocade is unlikely to reduce its bullish 2010 revenueand earnings estimates.

"H-P's potential partnership with Brocade for its Ethernet products was not officially announced," he explained. "We therefore believe that management would not have to bring down any of its future revenue estimates."

Brocade, which reports its October results on Nov. 24., is still in a relatively strong position, according to Roy, who maintained his $12 price target and outperform rating for the company.

But when all is said and done, do any of us really know what TSM and BRCD is worth or how these shares will perform in the weeks ahead? Absolutely not, but it sure appears that the brokerage community and analysts are mainly bullish about their chances.

Frankly of the two, I like TSM the most, and it has a lot to do with not only what they manufacture but that they have two fists full of cash--and over the months ahead in this old world, cash will be king (yet often subservient to the monetary "emperor" gold).

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

DISCLOSURE: I currently own some GLD,TSM and BRCD