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So You Want To Be an Analyst

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By ptnewell
June 29, 2001

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There are some jobs � say quantum electrodynamics theorist, or center for the Lakers � that require such specialized talents or training that few imagine they could do it. Other jobs � say coaching the Lakers, or being a stock analyst � seem so simple everyone seems to think they could do it. But actually being a stock analyst is much harder than it seems. Sure, you start with a 7-figure salary that hits 8 or even 9 figures if you bring in enough investment banking work. The trick is to love companies burning through great gobs of cash, such as Micron, Lucent, and Exodus, and to ignore highly profitable companies. The latter never need to raise capital, so what is the point in recommending them?

If your picks do as well as flipping a coin, you are ahead of half the analysts, and if they don't, tut-tut, but it's the retail investors who lose their money. YOU still get paid.

But being an analyst requires thinking like an analyst, and that turns out to be a lot harder than it seems. Here is an easy quiz to find out if you have what it takes.

QUIZ: CAN YOU THINK LIKE AN ANALYST?

1. RDRAM is the ONLY profitable type of DRAM. Therefore, in the future, do you predict that:
(A) DRAM manufacturers will make more of the profitable stuff (RDRAM).
(B) DRAM manufacturers don't really like money. RDRAM production will stop ramping higher any month now.

2. DDR is already a big money loser. Therefore do you predict:
(A) DDR production may falter in the absence of a market willing to pay a premium over SDRAM.
(B) DDR production will rise sharply. DRAM companies just can't lose money fast enough.

3. You work for Bear Stearns. Last summer you interviewed Micron and Infineon America then confidently predicted that the supposed ramp up of RDRAM production from summer 2000 levels of 2 million/month 128-Mbit equivalents would never happen. One year later, production has soared to more than 10 times that level, well above 20 million/month. Do you:
(A) Begin to entertain the possibility that any product ramping an order of magnitude in a year may become a standard.
(B) Issue another confident prediction that RDRAM will never grow much beyond present levels.

4. You work for Merrill Lynch. Last fall you enthusiastically recommended Micron, specifically telling your customers that "Micron will profit from its continued de-emphasis on RDRAM." From then on, far from profiting, Micron lost increasingly large amounts of money each quarter, while Samsung, which has described RDRAM as "their crown jewels," IS profiting. Do you:
(A) Stop taking your guidance on the future direction of the DRAM industry from Micron, or at least listen to Samsung as well.
(B) Stick with your bread and butter. Micron needs LOTS of cash, and raising capital is where brokerage firms (and analysts) really make money. Obviously Samsung must not know what they are doing, or they wouldn't have stagnated by staying number one for so many years.

5. Intel has repeatedly proclaimed RDRAM the future memory standard, offering the highest performance. Meanwhile Intel has repeatedly expressed skepticism about whether DDR is worth even a minor role in its lineup. Do you:
(A) Listen to what Intel says about RDRAM and DDR?
(B) Listen to what Burt McComas says Intel says about RDRAM and DDR?

6. Last summer Via promised that high performance PIII/DDR machines would sweep the world by the end of 2000. As an analyst you enthusiastically recommended Via, claiming they (and sister DRAM maker Nanya) would profit greatly from beating Intel to DDR. The Via PIII/DDR machines showed up 6-9 months late, did not remotely produce the performance Via promised, and have sold more poorly than the Edsel. Now Via is promising a P4/DDR combination to appear in volume "immediately" with high performance. Intel has already labeled Via's performance claim "bogus," and the only benchmark revealed was purely determined by the graphics card. Do you:
(A) Learn your lesson that Via delivers late, and far less than it promises.
(B) Enthusiastically expect great things from the Via/P4 machine.

7. Last spring, Burt McComas (of Inquest) correctly reported that dual channel RDRAM on the i840 produced only about 500 MB/s actual transfer rate between the memory and the CPU on Sis Sandra memory bandwidth tests. McComas then incorrectly described the dual channel i840 as having the "same exact memory subsystem as the Williamette {later P4}." McComas claimed that RDRAM was simply fundamentally incapable of EVER delivering more than about 500 MB/s on this memory bandwidth test, because of "latency." This incorrect claim that the i840 had the "same exact memory subsystem" as the P4 was quoted by Tom Pabst (Tom's Hardware) and repeatedly stated as fact by Anand. In fact when the P4 was released, its 400 MHz bus, synchronized with the 800 MHz RDRAM (400 MHz DDR RDRAM) showed low system latency, and produced Sis Sandra memory bandwidth results above 1500 MB/s. Do you conclude that:
(A) Intel knows more about computer design than McComas and hobbyist sites.
(B) DDR must be the future. McComas, and lots of hobbyist sites that get their information from him directly or indirectly, say so.

If you answered "B" to all the above questions, congratulations! You think like an analyst. Sell your soul, and get your resume in order. If you answered "A" to one or more questions, keep your day job. You seem too hung up on basic economic principles and common sense. If you really still want to be an analyst, tune your TV to Nickelodeon, and stare at it without moving for 96 hours, or until the "B" answers above make sense to you.