Sunday, January 28, 2007

Tech investors still buying the hype / fleckenstein

thats the reaction(chart) form wall street if you guide down badly. only the promise that things will get better is enough to pump the stock. i think this might be correct if management has a good track record regarding visibility and guidance in the past. but in this case the opposite is the case. wall street at work...........here is something fantastic from cramer at work back 2000 http://www.itulip.com/awards.htm

nette kursreaktion (chart) wenn man bedenkt das man soeben massiv gewarnt gewarnt hat. alleine die vorhersage das alles besser wird ist heutzutage genug um die aktie ins laufen zu bringen. stimme im prinzip damit überein. das trifft aber nur zu wenn das management einen guten track record in sachen vorhersagen hat und das geschäft gut prognostizierbar ist. hier ist genau das gegenteil der fall.

It's just too typical. Texas Instruments' earnings report -- weak results, with no hint of what truly lies ahead -- is greeted with upgrades by the experts in the investing community. (watch the jump on wednesday / guckt euch den sprung am mittwoch an)

I have no idea what drives the "thought" process on the part of those folks who buy tech stocks these days. Perhaps they have a romantic notion about how wonderful these names are to own. So they buy them, and therefore the stocks act "OK" -- even though companies report disappointing news. In turn, that stock buying just begets more buying.

TXN bobbleheads gobble it up
Many of you have heard of people "buying the dip." This week I'd like to discuss a variation known as "buy the hype," which is what Texas Instruments bulls did last week as they focused on TXN's sunny forecast rather than its rather weak results.

One would think that when a company such as Texas Instruments misses forecasts badly enough to continue to pile up inventories (as happened throughout last year, as the company failed to anticipate the downturn that's occurred thus far), that company might have to offer some evidence of why it expects future forecasts to be more accurate.

But that was not the case on its recent conference call. Management, which shocked me at their midquarter update with an accurate assessment of their prospects -- what some might call honesty -- was back to its usual tactic: fabricating future demand out of thin air. They said: "This thing will turn around quickly," without offering any data to support their claim. Of course, they weren't held to any details by the dead-fish community, where some in fact upgraded the stock.

.....response with the objective analysis done by my friend Tony Rao, who toils at research boutique
East Shore Partners. ....."The TXN report last night was very negative, missing Street consensus on virtually all metrics. Q4 numbers appeared to be in line, but the Street lowered their numbers after TXN guided down in the beginning of December. Guidance for Q1 was poor -- with revenue guidance at $3.15 billion, versus $3.32 billion consensus, and earnings between 28-38 cents, versus 35 cents consensus. From the guidance, it's obvious that the company has no clue as to what the wireless product mix will be, and whether 3G (third-generation networks that permit a new level of mobile interactivity) sales will rebound from the sharp decline in Q4. TXN had a book-to-bill of .89, which is the lowest bookings rate they've experienced in two years.
So what do they do in this environment? They have begun to reload their fabs (fabrication facilities) in anticipation of increased demand. They have no forecast from handset customers to support this thesis, and the moribund booking rates in Q4 certainly don't support this. They state they are doing this because last time, when handsets turned down in 2004 near year end, when the market rebounded in mid-2005 they could not meet demand. One should note that the falloff in 2004 was much less severe than it is currently. So, they are basically banking on a return of demand. (2004 was an inventory correction. This is, too, plus a weakening of demand.)
This strategy is extremely risky for TXN. If the demand does not materialize, or if it is slower to materialize, or if it is of a lower magnitude than they plan for, they will have a big inventory problem....... The reason the stock is up today is clear in my mind, even though it also makes no sense to me. The Street is taking the fact that TXN is loading their fabs as an indication that 'they know something' and that they must see demand increasing in some material way. .....

Give 'em the old second-half razzle-dazzle That is an accurate assessment. For some time now, it seems that companies have been able to report just about any number, and it doesn't matter as long as they tell everybody -- without even having to produce any supporting data -- that things will get better in the second half.
Optimism on ice, via lower price
To undermine that illusion of invincibility, it's going to take lower stock prices. And what will cause lower stock prices, you might ask? Exhaustion. Exhaustion causes lower prices, regardless of what the bullish crowd wants. And, while occurring in fits and starts, I think that process might be under way.
fleck is short txn

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