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Politics : Formerly About Applied Materials
AMAT 295.83+4.1%Jan 6 3:59 PM EST
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To: Sam Citron who wrote (10481)11/6/1997 6:05:00 PM
From: Cary Salsberg   of 70976
 
Sam,

RE: "...capex by semis (as % of their sales) is coming off from unsustainably high levels..."

I saw INFRASTRUCTURE's line graphs of capex as a % of sales, but I think it is a red herring. Consider that the DRAM manufacturers (40% of equipmnet sales I believe) have the unenviable problem of market prices below costs. When market prices fall, total revenues fall, and (horrors) capex as % of sales rises. Do you see any semi manufacturer saying, "I don't mind selling below cost but I'll be damned if those semi-equips get x% of my revenues!"? The general concensus is that these companies must spend to lower costs to both be profitable and stay in the game. As the value of capex increases (geometries, new processes(Cu), wafer size), the price will also increase. The capex % of sales will not fall as long as competition and commodity products drive down prices.

That being said, I agree that there are short term "cyclical" risks. I will ride out the long term cycle as long as prices don't discount most of the upside or present a short term risk by getting ahead of the cycle. I was seriously considering $60-65 (Tito's target price) as an exit when AMAT reached $50-54. I am too piggish on the bottom and at the top!<g>

Cary
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