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- THE FRIDAY LETTER -
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| http://www.gilder.com/ | Issue 349.0/July 25,
2008
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HEADLINES:
- The Week / George Gilder: Ceradyne’s SemEquip Purchase
-
Friday Feature / Ken Fisher: Don’t Fret About the Fed
- Friday Blogger Bonus / Tom
Evslin: How to Lose Your Company
- Readings /
The
Week / Ceradyne’s
SemEquip Purchase
Ceradyne to buy
privately held SemEquip for $25 million
http://money.cnn.com/news/newsfeeds/articles/apwire/546ca59a966c917a2440999df39494e6.htm
George
Gilder, Gilder Telecosm Forum: If Ceradyne
(CRDN) is near a reasonable valuation for its existing business, I would regard
it as a compelling buy after it purchases SemEquip, which has a critical
path technology for the entire next generation of semiconductors. According to
tests at NTT labs, SemEquip's ion implant breakthrough not only increases
throughput nine-fold but also enhances the performance of transistors by 30% to
40% while reducing leakage current by as much as a hundredfold. It has a
compelling business model, which adds monthly proprietary chemical supplies to
the sale of some of the most complex and expensive and vital equipment in the
industry. Ion implanters are what make silicon semiconductors.
Carver Mead and other experts at Gilder/Forbes Telecosm 2008 (May 27 – 29
in Lake George, NY) regarded SemEquip's invention as the most exciting new
technology presented at the conference. (Selden Labs and Jules Urbach’s
Lightstage were last year's stars.) SemEquip's problem was an incredible
imbroglio among feuding venture capitalists who bought shares at varying values
in expectation of an AMAT buyout and wanted to sell in order to cashout their
fund on schedule. Applied Materials (AMAT) decided instead to exit the
ion implant business entirely and concentrate on solar.
Telecosm Forum Member: Ceradyne
is a $1 billion market cap with $760 mil of sales in 2007. They are paying $25
mil for SemEquip with a 15 year earnout. Given that purchase price I would
guess that SemEquip is still long on promise but not yet sales rich; so I'm not
sure how much SemEquip exposure an investor today will get in Ceradyne... I think
body armor and the other lines of business are going to be more impactful on
the stock price than the semiconductor technology business.
Read more posts by George Gilder and the Gilder Telecosm Forum members,
logon with you subscriber password at www.Gildertech.com
today.
|
The Gilder Telecosm Forum To
learn how to join this powerful network of talented, tech-savvy investors and
thinkers online daily to debate, discuss, and decode new and emerging
technologies and share valuable and actionable investment advice, visit www.Gildertech.com today. |
Friday Feature / Don’t Fret About the Fed
Ken Fisher, Forbes.com “Portfolio
Strategy” (7/21/08): Curious fact: U.S. stocks do
better than foreign ones in the months before a U.S. election.
There
is a spreading fear in the U.S. that a period of tightening by the Federal
Reserve Board is imminent. It has gotten to be obsessive. On a recent round of
New York media interviews, I encountered two almost unanimous views: that the
Fed would hike rates later this year, and that Barack Obama would be elected
President. Both events are viewed as all but certain, and as all but certain to
do great damage to the stock market.
The
fears can be put aside. The market will recover.
It
is presumed that increases in the Fed's target rate for overnight loans are bad
for stocks because high interest rates make the future earnings from
corporations less valuable today. But the connection is not so neat.
Since
1970 there have been eight stretches in which the Fed was tightening and eight
in which it was loosening. These periods ranged from 6 months to 56 months
long. Recently I made two tables, one showing stock returns (as measured by the
MSCI World Index) over various periods beginning at the starting points of the
tightening periods, the other showing returns beginning at the starting points
of the loosening periods. The periods covered 3, 6, 12 and 24 months. I've
asked both large audiences and individuals to tell me which set of returns was
for the tightening times and which for the loosening. They've been stumped.
There's no pattern. They look almost identical.
For
example, 24 months after tightenings started, returns averaged a cumulative
16.9%; 24 months after loosenings they averaged 19.7%. But look at medians
instead of averages and the results flip-flop to 18.1% for tight money and
12.4% for loose money. You can't find any pattern over shorter holding times,
either. Despite what your gut tells you, central bank action holds no useful
information about where stocks are going.
In
my May 19 column I detailed why U.S. investors needn't worry about an Obama
presidency. Another observation: U.S. stocks do better than foreign ones (in
dollar terms) in the last five months before a presidential election. Since
1928 this has happened three-fourths of the time; the advantage to domestic stocks,
averaged over all 20 elections beginning with Herbert Hoover's, is 9.1
percentage points. And when it hasn't happened, the other quarter of the time,
U.S. stocks haven't lagged by much. When they've led it has been by more than
13%. Simple explanation: Markets dislike uncertainty, and uncertainty declines
as Election Day nears.
No guarantee the pattern will hold in 2008, but that's the
way to bet.
Learn which U.S. stocks Ken Fisher likes right now:
http://www.forbes.com/business/global/2008/0721/113.html
__________________________________________
Friday Blogger Bonus / How to Lose
Your Company
Tom Evslin, “Fractals of Change” blog
(7/21/08): From an article on "net-top"
computers in today's New York Times: "'We're sitting on the
sidelines not because we're lazy. We're sitting on the sidelines because even
if this category takes off, and we get our piece of the pie, it doesn't add
up,' said Paul Moore, senior director of mobile product management for Fujitsu.
'It's a product that essentially has no margin.'"
No one can blame
Fujitsu for wanting to stick with higher-margined traditional laptops. But you
don't always get what you want. If this category of thin, light, cheap, energy-light
computers built primarily to surf the Internet and use online applications
takes off and begins to cut into sales of today's full-featured laptops,
Fujitsu will lose its current laptop business and have nothing to replace it
with.
You can't make
displacement products disappear by sticking your head in the sand. You can't
always maintain the margins you were used to. In fact, if you're in a line of
business where you have "comfortably" high margins, you're in a line
of business which is particularly susceptible to disruptive attack.
It Fujitsu really
believes there is no market for this product, it is good business to avoid
making it. But, if Fujitsu believes there is a market, then they need to figure
out how to make their existing product more competitive or how to compete in
this market and add enough value to earn a margin or how to disrupt the
disruptors with innovation of their own (or get a law passed against their
competitors but that's unlikely in this case).
Further down in
the story the Times says: "Intel is projecting that by 2011, the
market for the netbooks will be 40 million units a year, which is why Intel is
jumping in with low-powered chips that would be used in the netbooks and the
net-tops… Intel executives think the market for low-cost PCs is too big to pass
up, though it does raise a potential threat to more powerful and more
profitable computing lines."
Microsoft,
according to the story, is also a participant in this market:
"Microsoft
has been a reluctant participant too. Even though it is no longer selling its
Windows XP operating system software, it made an exception for makers of these
low-cost laptops and desktops. Microsoft said it was responding to a
groundswell of consumer interest in the low-cost machines, but some makers of
those machines say Microsoft did so reluctantly because it did not want to lose
market share to Linux."
Reluctance is OK;
sitting on the sideline sulking is not.
Years ago I tried
to interest my then-employer AT&T in VoIP. To their credit, some people in
the company believed AT&T should be a leader in this new category of voice
service. But the argument that kept AT&T out of VoIP was "why should
we participate in cratering the margins of a profitable business." It was
somewhat a holdover from the monopoly days when AT&T's lack of
participation in a technology might have slowed the spread of that technology.
When my counter-argument "because it's going to happen anyway and we'll be
better off leading rather than following" wasn't persuasive, I left to
cofound a VoIP company secure in the belief that I wouldn't have to worry about
competition from AT&T.
I have no idea
whether net-top computers will succeed. But I do know that companies have to
face disruptive competition squarely in order to survive.
Check out Tom’s Fractals of Change blog:
http://blog.tomevslin.com/
__________________________________________
Readings /
Qualcomm, Nokia
End Patent Fight
http://online.wsj.com/article/SB121690745641080963.html?mod=hpp_us_whats_news
Steve Jobs’ Diet Secrets
http://www.forbes.com/technology/2008/07/24/steve-jobs-diet-tech-personal-cx_bc_0724jobs.html
Sprint to Sell Cell Towers
http://online.wsj.com/article/SB121687266713780423.html?mod=2_1571_leftbox
Microsoft Engineers Invent Energy Efficient LCD Competitor
http://www.spectrum.ieee.org/jul08/6466
__________________________________________
Friday Letter Editor: Mary Collins George / mcollins@gilder.com
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