Thread,
AMAT moved from $11+ to $54 on expectations of a long semi-equip up cycle driven by moves to smaller geometries and larger wafers. The long term road map is intact, and sales, earnings, and stock price will be much higher over the next 3-5 years.
The prices of AMAT and other semi-equips discounted a good part of the up cycle at the highs, and assumed a continuous improvement in the businesses.
The current price action reflects nervousness that the business expansion will not be continuous, but will move up in fits and starts. We are all aware of previous cautionary notes which cited DRAM prices, general overcapacity in business and overcapacity in chip production, the decline in SE Asian economies, and the move to lower priced PCs. These have been offset in the 97 recovery by the need of chip makers to move to new technology. There has been some concern about the transition from technology sales to capacity sales, especially with the DRAM makers.
The BTB contributed to the price decline because it did not improve the outlook for 98. It, and the NVLS report and CC, were good, but did nothing to improve visibility for 98.
What to do:
1. Traders should probably be short.
2. Long term investors with no position should wait on the sidelines until the November 20 CC wherein AMAT is expected to give guidance for fiscal year 98 (10/97-10/98).
3. Long term investors with positions should hold at this point but wait as in #2 for additional investment. Holding will likely incur paper losses from here, but most long term investors are not adept enough to get out and get back in at the right prices.
Cary |
