Lone Star, Mike or anyone: I just posted this note on another thread. I seek your comments. No problem, feel free to tear-it apart. -g-
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SemiEquip biz comes down to cycles normally last for ~4 years. Surprisingly, the last
cycle lasted less than 2 years and the equipment companies saw light within one year
since they saw a down-turn. Thanks to optimistic expansion of 64 Mbit and higher
DRAM fabs, and to some extent, microprocessor fabs (Intel, AMD.) The main players
in these business and other contract manufacturing business (who mfr for fabless
entities) had to upgrade in order to remain competetive and/or stay ahead.
As it turns out, everybody (mainly DRAM cos, not mpcs) has the same business plan.
The result is a glut in chips. Current spot prices for DRAM are $4.35 and are
expected to go below 4 very soon. FYI, the self-proclaimed low-cost producer,
Micron's cost is about $4.00. Below $4.00 I doubt if anyone makes money.
Cross-over to higher priced 64 Mbit DRAM's hasn't occured yet. Even if it does,
profitability in 64 Mbit DRAM is remote because of supply demand imbalances. Jerry
Denkera, an DRAM trader (not the stocks) and an authority in this matter, I might add,
has to say the following about the pricing:
techstocks.com
It is hard to justify further spending when you are not making money on your current
huge investments. With that picture in mind, it is very possible to see several push-outs
and order cancellations from atleast these DRAM firms. No doubt some companies,
including the big guys like TXN, Intel keep spending to stay ahead. That is not a bullish
case for MAT and LRCX, rather it prevents them from going bankrupt. -g-
In the past two cycles, the equipment companies derived most of the business from
memory chip companies. The glut and Asean economy turmoil won't help for the
orders going forward. Taiwan and Korean chip companies are significant buyers of
these equipment. They are now hurting from two fronts: lower pricing of the chips and
economy turmoil.
This guy, Lone Star, is an authority on semiconductor equipment biz. He is also a bull
on AMAT. But he is not a trader. He is cautious about the industry prospects now.
This is what he has to say.
techstocks.com
To keep you busy for entire afternoon, I have assembled a few links in which I have
discussed how it unfolded for the chippies and equipment companies during the last
cycle. I have no reason to belive that this time it will be different. Regardless of what
the short-term and intra-day trading action suggests.
techstocks.com
techstocks.com
Remember one thing, AMAT, LRCX and other equipment companies trade on
forward orders. Trailing earnings mean nothing. Initial signs of trouble were already
reported by KLIC and KLAC. I think it will be a repeat pattern.
Good luck!
-Mohan |
