Mar

10

1999-2001 is an interesting period to study as there are many parallels to the present. Back then, the approach of the year 2000 caused a rush to buy new technology to fix all the old systems that used two digits to represent the year. The efforts were generally successful, and doomsday predictions failed to materialize, but the event pulled a lot of demand for technology from the future into the present. When that future arrived in 2001 and 2002, technology sales slumped because everybody already had shiny new systems–no need to buy more. A similar scenario occurred with the rush to enable remote work and communications in 2020, a bonanza for technology companies. What is different this time is that the technology bust resulting from the saturated market already occurred in 2022-23, but now there is a second wave.

K. K. Law notes:

Don't know if anybody ever mentioned about in the 2000 era many optical components manufacturers double-booked and triple-booked the actual TAM. I knew that first hand but too late. Then the CEO of a major component manufacturer called JDSU, now has become a much bigger company, due to multiple M&As, decided to resign in order to sell his company stocks.

Steve Ellison responds:

I vividly remember that JDSU reported blockbuster earnings in October 2000 that for a day or so reversed the Nasdaq rout that by then had been in progress for 7 months. Jim Cramer, who was still running his hedge fund and presumably still had an edge from calling his buddies at bulge bracket firms to find out what big orders they were working that day, pointed out that JDSU's sales were probably just piling up in inventory at downstream suppliers (that had all reported disappointing results); hence JDSU sales were about to go off a cliff. Since I still have the scars from owning JDSU, I developed a tracker of some important companies in Nvidia's ecosystem (chart below). If one of the other stocks turns down, maybe it will be an early warning.

K. K. Law comments:

The actual bookings of all the optical suppliers were over-inflated by many folds over the actual demands by the telecom system manufacturers and service providers . The market eventually realized that.

Steve Ellison adds:

Even in the absence of fraud, when there is a component shortage, buyers inflate their orders to try to gain priority, and executives at the supplier might misinterpret the orders as real demand. When the bottleneck is alleviated, and supply begins to actually flow, the buyers quickly cancel the excess orders in a phenomenon known as the "dreaded diamond", as I discussed in a Spec List thread in 2021.


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