Stock Mart: Electroglas
By Marcy BurstinerStaff Reporter
Chip-equipment stocks tend to be predictable. For about three years,
they rise as chipmakers load up manufacturing plants with new equipment
to meet changing technology. Then, demand peaks, and the equipment
makers struggle until the next technology change three years later. The
trick for investors is to time their investments right.
Expectations that the industry is starting the climb up has already
boosted leaders like Applied Materials (AMAT:Nasdaq), Novellus
(NVLS:Nasdaq) and Teradyne (TER:NYSE) to sky-high levels. But the
stocks of smaller companies like Electroglas (EGLS:Nasdaq), a Santa
Clara, Calif.-based maker of wafer probes, machines used to spot
defects in semiconductors, have lagged.
"The test equipment industry is seeing a very significant upturn and
usually the market for wafer probers is not far behind," says Edward
White, an analyst at Lehman Brothers who has an outperform rating onthe stock.
Electroglas, he says, just shipped an evaluation unit to a major
chipmaker, and it will likely ship one to another chipmaker in the
third quarter. These are products that sell for $650,000 each. "We are
seeing the real early stages of interest," he says. (Lehman Brothers
hasn't been an underwriter for Electroglas.)
Electroglas is one of the oldest equipment makers in the chip industry,
dating back some four decades to the beginning of semiconductors, says
Jeff Hinke, an Electroglas spokesman. For the last 25 years, it
exclusively made wafer probers. Three years ago, Chairman and CEO Curt
Wozniak joined the company and began to diversify the product line. In
1997, the company acquired a designer of inspection software, and in
1998, it bought a maker of optical machines that allows chipmakers to
visually inspect the wafers.
Yang Lie, an analyst with money manager M.J. Whitman Advisers, which
has held Electroglas since 1997, says the ability to sell both
inspection software and hardware is rare. With Electroglas products,
chipmakers can get information on chip defects from its testers and
feed the data quickly to the start of the chip production line. So
companies can spot the problems and fix them quickly. "That's a big,
big deal," Lie says. Only two other companies supply wafer probers, she
adds, and because market share has been evenly spread among all three
players, price competition is low.
Hinke, the company spokesman, says Electroglas introduced two new
products designed to sell into the latest chip trends: one for the
manufacturing of high-performance microprocessors, and another for new
300 millimeter wafer fabrication plants for which Intel (INTC:Nasdaq)
and Motorola (MOT:NYSE) recently announced huge investments.
To be sure, the company, like the industry, has had a rough time
lately. It lost money for six straight quarters until the most recent
quarter, when it broke even. The stock also suffered, trading as low as
7 3/4, where it bottomed on Oct. 9.
But since then, it has risen 143%, closing up 1/2 at 18 7/8 Friday. But
compare that to the 233% rise that equipment Applied Materials has seen
over the same period. And at 18 7/8, Electroglas is still almost half
off its all-time high of 35 7/8 that it hit in August 1997. White at
Lehman says there's still plenty of room for the stock to rise.
He recently raised his 2000 earnings estimate for Electroglas to 85
cents a share from 75 cents and believes that when the market peaks in
2002, the company will earn $2 a share. The First Call consensus calls
for Electroglas to earn 6 cents a share this quarter and 13 cents a
share in the fourth quarter, giving it a loss of 10 cents per share for1999.
The company reported a book-to-bill ratio of 1.15 for the second
quarter, meaning that 1.15 new orders came in for every order shipped
out. A book-to-bill of more than one is generally seen as a sign of
health for an equipment maker.
"The growth outlook between now and 2002 is quite favorable," White
says. "There is so much going on in the semiconductor industry to test
advanced chips." |
