Mr. Pfau: 2001 is obviously a difficult year for all technology stocks, and it's probably the first flat to down year that we've ever seen in wireless technology. This has been reflected not only in the fundamental performance of the companies, but in their stock prices as well. We have been cautious since early this year on the whole group as we headed into this slowdown. However, we remain extremely bullish on the long-term outlook for wireless technology. We still consider it to be a great area for the investor. Eventually, as worldwide economies recover, we expect that wireless will be one of the strongest growth areas in all of technology. Near term, we expect that for most companies the June quarter will be the worst quarter of the year. We look for a slight improvement in general in the September quarter, and then we're looking for a strong rebound in 2002 for the industry in general.
TWST: How far ahead is the investment community looking at this point?
Mr. Pfau: That's a very good question. We reached a bottom in the NASDAQ
market on April 4. We believe that bottom was put in place by
recognizing that the fundamental bottom for most companies' revenue and
earnings performance will probably be in the June or September quarter.
So the market is already beginning to look beyond this bottom into a
stronger second half and a strong 2002. Now, some sectors within our
overall wireless coverage have had a huge move off the April 4 bottom.
The wireless devices and components sector is up almost 300% from that
bottom. We have had a huge move in the sector ahead of a fundamental
turn. Our concern is that investors are not prepared for a modest second
half. The devices components group will always move first, and that's
already happened. The more infrastructure-dependent companies, including
the subassembly and, in some cases, broadband companies, will move
later, and that's what we're seeing. Those stocks, although they're up a
bit, are not up as significantly as the devices and components. We are
telling people, 'We believe so strongly in wireless that we think you
need to be overweight the group here at the bottom.' We're also focusing
on net margins. Net margins are the most important determinant of upward
earnings revisions as we come out the other side of a downturn. So the
companies that we favor are strong companies that are going to lead on
the net margin side, including companies Cree (CREE), TriQuint (TQNT),
and obviously Nokia (NOK) and QUALCOMM (QCOM) on the big cap side.
Another company that we like in the subassembly space looking forward is
Aeroflex (ARXX). On the broadband side there are some valuation
opportunities in the shares of DMC Stratex (STXN) and BreezeCOM (BRZE).
Tickers included in this excerpt: ARXX, BRZE, CREE, ERICY, FLRE, MOT, NOK, QCOM, SAWS, STXN, TGNQE, TQNT, VLNC, WCIIQ
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