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Tech is Safe? Not so Much - See Qualcomm (QCOM)

I write this post every 3-4 months... I am completely at a loss at investors infatuation with tech stocks. These are, for the most part, cyclical stocks that turn with the economy. I wrote many pieces last summer about "tech is not a safe place to hide out" when the pundits said you can hide there. Each time this market turns, people flock to the technology stocks - aside from a handful with a fortress balance sheet (high cash) and a few nice growers - the rest are no different than buying Honeywell (HON). It's a decade later and I still think some people think its NASDAQ 1999.

Qualcomm (QCOM) is one of the old school names - solid company and gun to head if I had to buy tech this would be one name I'd say is ok for a 3-4 year horizon, but it's not impervious to the economy. Broadcom (BRCM) is another. Cisco (CSCO) is another. Juniper (JNPR) reports tonight and is another. EMC (EMC) is another. Nokia (NOK) is another. What's the infatuation? Outside of buying the router companies on "the Obama broadband thesis" I don't get it. My only guess is there are so few themes to play with financials and commodities beaten to a pulp that my process of elimination people keep coming back to "old tech".

Reality check.

Shares of Qualcomm Inc. came under pressure Thursday morning after the provider of chip technology for wireless phones posted lower-than-expected earnings tied to heavy losses on its investment portfolio. Qualcomm was off more than 7% to $34.20 at last check.

Late Wednesday, the company reported that net income dropped significantly in its first fiscal quarter despite a gain in revenue. The company also issued an outlook that was slightly below most Wall Street estimates, saying that the slowing economy made forecasting difficult. (yes, just like an industrial - what's the difference. These are not "immune" to the economy nor safe havens) The company said the global economic slowdown and financial crisis has slowed demand for its chips that run many of the world's mobile phones.

For the period ended Dec. 31, Qualcomm reported net income of $341 million, or 20 cents a share, compared with net income of $767 million, or 46 cents a share, for the same period the previous year. (50% year over year reduction; no different than most companies who own factories and make widgets)

Revenue rose 3% to $2.52 billion. (there's that "high growth" tech)

Analysts focused on the hit to the company's investment portfolio, as Qualcomm said it has determined that about $388 million of its investments were "other than temporarily impaired." It also said that, as of Jan. 23, it had "net unrealized losses" totaling $1.1 billion in marketable securities. (oops)
Reduction in future about 10%...

The company now expects sales for 2009 of $9.3 billion and $9.8 billion, down from a previous forecast of $10.2 billion to $10.8 billion.

Again, I actually LIKE Qualcomm all things being relative so I am not picking on it; but I don't get the love affair with tech. Too many people are still living in the late 90s. We spend more time in the media focused on a walking dead company like Yahoo (YHOO) than on the future leaders.

What is even more amusing are watching people pile into the most cyclical area of all - semiconductors - anticipating the "recovery in 6 months". They've tried this trade about 4x the past 10 months. Everything is by the "playbook" in Wall Street world - the herd is so predictable.


TraderMark

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www.fundmymutualfund.com

Disclosure: No positions

About the author:

Trader Mark
Mark's equity focus is identifying secular growth trends, and the companies most likely to benefit from these macro trends. Stocks are identified through fundamental analysis, although basic technical analysis is used in determining entry and exit points. With a degree in Economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology is also a major interest for Mark. His career background has focused on financial analysis in corporate America. Visit Mark's website at http://www.fundmymutualfund.com/

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