Chip equipment makers hit by Asia but investors buy
Reuters Story - February 17, 1998 20:15
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By Therese Poletti
SAN FRANCISCO, Feb 17 (Reuters) - Semiconductor equipment
makers have been hit hard by the economic problems in Asia, but
bargain-hunters are scooping up the companies' stocks even
though the region's troubles may not be over.
Recent earnings reports from semiconductor equipment firms,
including bellwether Applied Materials Inc., have all cited the
problems in Asia, where chip makers in Korea and other
countries buy a big chunk of all chip-making gear each year.
"There is an Asian 'El Nino' going on," said Daniel
Hutcheson, president of VLSI Reseach, a market research firm.
"It's pretty grim, we have even revised our forecast."
Hutcheson said VLSI was now predicting semiconductor
equipment sales would grow 3 percent, off from an earlier
forecast of 20 percent, to about $39 billion this year.
The equipment makers develop systems used to make computer
chips in "clean rooms" around the world. Asia, notably Korea
and Japan, are big markets for the U.S. chip equipment makers.
Analysts said 30 percent of the world's dynamic random
access memory (DRAM) chips, key components in personal
computers, come from big Korean semiconductor makers.
A supply glut led to falling prices for the chips last
year, worsening Korea's financial woes. In addition, the
country's chip makers used DRAM chips as collateral for bank
loans, so when prices plunged it crimped access to new funds.
Meanwhile, ripples from the problems in Asia have spread
across the Pacific to California's Silicon Valley.
Last week, Santa Clara, Calif.-based Applied Materials said
new order growth would slow due to a "high degree" of
uncertainty in Asia, especially in Korea and Japan. It said one
Korean manufacturer, Hyundai Corp., delayed a big investment in
a new plant in Scotland because it could not get financing.
A few days later, Lam Research Corp. of Fremont, Calif.,
announced a major restructuring, 700 job cuts and a charge
against earnings. Lam said lower prospects for sales and
orders, mainly due to the Asian crisis, had led it to refocus
on its core chip-etching products and cut back in other areas.
ASM Lithography, the second biggest developer of
chip-making wafer systems called steppers, said last month that
the problems in Asia made it difficult for the Dutch company to
give a clear forecast for 1998. But it said even if its South
Korean business "turns sour," total sales would still grow.
Despite all the bad news, investors have not flinched.
Applied Materials stock fell $1 to $36.50 Tuesday but
remained well above its low of around $25 in December. Lam
Research was at $28.50 vs. a 52-week low of $21.375, and
Novellus Systems has rallied from a low of $23.875 to an
intraday high Tuesday of $43.25. KLA Tencor Inc. has been
crawling back from its December low of about $33 and was at
$43.75.
"We feel like there has been some panic buying," said
Robert McCormack of Integral Capital Partners, an investment
fund in Menlo Park, Calif.
"People think that Asia has bottomed. They see a stock that
had been trading at 60, now it's at 25. Korean (companies)
might start re-ordering someday. Let's get in now while we have
the chance."
Investors must be prepared for a continued "roller coaster
ride" in semiconductor equipment stocks, said Brett Hodess, an
analyst at NationsBanc Montgomery Securities, but added the
stocks will begin to recover in the second half of 1998.
Some investors also may be taking heart in comments by
Applied Materials Chairman James Morgan, who in a call with
analysts last week likened the current events in Asia to
heading off for a ski trip during a winter storm warning.
"You know tomorrow will be one of the greatest powder days
you ever had," Morgan told analysts. "You have to be sure your
equipment is in good shape, you make sure you are in good
shape, then you drive all the way there.
"We usually come out of these periods in extremely good
shape, relative to the competition."
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