China Threatens The Chips

Ed Sperling of Electronic News reports on a Morgan Stanley analyst's breathless speech to leaders of the semiconductor industry.  The analyst, Byron Wien told the industry they were on the verge of crisis because of a)The government not doing enough to help them b)China, and c) Companies hoarding too much cash.

“We’re at the beginning of a very serious challenge,” Wien said. “Unless we take action, we’re in trouble.”

He said the U.S. government needs to provide incentives to the industry, as well as dollars for research and education, because China cannot be counted upon to just continue buying bonds and stocks. He said at some point it will begin buying companies, as well.

Wien also assailed some of the leadership of technology companies, as well. He said the cash buildup by companies and the reduction of debt shows a lack of understanding about what to do with money and makes many companies ripe for a leveraged buyout. “What this says to me is that companies don’t know what to do with the money.”

First of all, you've got to be wary of any analyst who thinks that they understand the business better than industry-leaders.  Analysts don't like cash buildups, it's as simple as that.  Furthermore, his suggestion that the U.S. Government spend more money on R&D to ward of The China Threat is a joke.  Where is the government going to get this money?  Borrowings from China.

This last point is by far the strangest, however:

Wiens added that China will not be a bubble like Japan. The country has not made scurrilous purchases such as buying Rockefeller center. “The smartest people in China go into government,” he said. “I don’t think we can say the same.”

Thank God!

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