The Wall Street Transcript Publishes Semiconductor Equipment Industry Issue
NEW YORK, Aug. 24 /PRNewswire/ -- Leading analysts examine the Semiconductor Equipment sector in the latest issue of The Wall Street Transcript (212-952-7433). In a vital review of this sector for investors and industry professionals, this 40-page report features:
1) In an in-depth roundtable forum on the Semiconductor Equipment sector (19,000+ words), five leading analysts: Mark FitzGerald of Merrill Lynch, Edward White, Jr., of Lehman Brothers, Robert Maire of Bear, Stearns & Co., Vadim Zlotnikov of Sanford C. Bernstein & Co. and Gunnar Miller of Goldman, Sachs & Co. examine improvements in semiconductor plant productivity, diversification from a PC-centric focus to consumer and communication markets, firms positioned to benefit most from the next upturn, capital spending levels and Intel's cap-ex outlook.
The expert panel explores the competitive horizon, pricing outlook, Y2K impact, copper wire transition, The Damascus Alliance versus Applied Materials, M&A activity, growth segments, investor sentiment, management performance and investor concerns. They analyze specific sector firms, and each analyst offers their recommendations with some stocks receiving a consensus of positive opinion, with the outlook for others disputed.
For semiconductor equipment firms, this year is turning out to be far improved over last year, Zlotnikov explains, "There was acceleration of growth. We've seen strengthening of orders and an increase in spending on capacity expansion and plans for new fabs, all of which are positive for the capital equipment industry."
Offering investors a specific overview of the sector's performance, FitzGerald asserts, "The companies that have the leading-edge technology are the companies that are doing the best, products such as DUV lithography, process control, critical etch and chemical deposition, chemical mechanical polishing (CMP). The test segment is also very strong because IC units are accelerating and technical trends are driving investment in a new generation of test solutions, more highly integrated device designs, faster speeds and higher pin counts. Companies with tools that sell into those technology modes are doing well; Applied Materials (Nasdaq: AMAT), ASM Lithography (Nasdaq: ASML), KLA-Tencor (Nasdaq: KLAC), Lam Research (Nasdaq: LREX), Novellus (Nasdaq: NVLS), and Teradyne (NYSE: TER).
But there are sector firms that haven't participated in the upturn, FitzGerald declares, "The smaller companies that are not offering tools targeting advanced technology modes -- 0.25 micron and 0.18 micron processes have not benefited from the improved operating environment."
FitzGerald asserts, "Capacity-driven companies Electroglas (Nasdaq: EGLS), FSI International (Nasdaq: FSII), GaSonics (Nasdaq: GSNX) and Silicon Valley Group (Nasdaq: SVGI) still are underperforming."
The strongest sector spending is coming from well-capitalized firms, Miller states, "While Intel (Nasdaq: INTC) is spending $3 billion, it is important to note that it's only spending about 10% of revenues on capital this year. So I personally don't think that's really 'leading the charge' in terms of capital intensity relative to what we are seeing on the Pacific Rim. And some of what we are seeing on the Pacific Rim in terms of growth is a snap-back effect, because there was so much under-spending that occurred in 1998."
Game consoles are an emerging growth sector, Maire explains, "If you look at the percentage of silicon value, it's $150 worth of silicon in a $200 game console. That's a very good contribution to the overall semiconductor industry, given that the value of the silicon content is a higher percentage of the selling price than that of a PC. Case in point, Sony (NYSE: SNE) is building a billion-dollar-plus fab just for PlayStation II. No matter whose numbers you believe in, game consoles will be a much larger and more important factor of the overall semiconductor and semiconductor equipment industry for the next few years at least."
Lower-price PCs are great for the semiconductor equipment sector, Maire declares, "Getting down to sub-$1,000 and sub-$500 PCs is fantastic for the industry. It opens up a whole new set of marketplaces. I don't think there's been a lot of analysis done as to what a sub-$500 PC can do to other markets, for example, Asia and China. China has four times the population of the U.S. If a $500 PC meant that you could have a quarter of the penetration rate in China, as you have in the U.S., you could have a market as large as the U.S."
While many who follow the sector look for the transition to copper to jumpstart demand, Maire warns investors, "To implement copper is easily going to take -- we've heard estimates from a lot of companies of at least five years to get to the 50% point. It may take four years, but it isn't going to happen overnight. So I would not overvalue based on copper connectivity."
But FitzGerald retorts, "I'm more aggressive on my outlook for copper. Our view is that the leading logic companies in the high end are clearly going to move to copper pretty quickly. The evidence is there that they're working on it as we speak, and that in 2000, this will have an impact in IC segments like the high-end microprocessor, ASIC and DSP markets. We've been seeing the foundry companies push ahead. UMC has set the pace here with their plans to move copper into production. UMC's plans are forcing other foundry vendors to move more quickly, including Taiwan Semiconductor (NYSE: TSM). So we actually think in 2000 that the industry will see a pretty strong inflection point."
The panel goes on to offer recommendations about which sector stocks are most likely to reward investors.
In the mid-cap range, Maire asserts, "Varian Semiconductor Equipment (Nasdaq: VSEA) has a large amount of upside potential. Varian Semiconductor was not as well covered when it was part of the conglomerate, but it is now attracting more notice. It's been somewhat of an undiscovered value."
For a small cap sector stock, Maire selects, "An interesting alternative, Mattson Technology (Nasdaq: MTSN). Founder Brad Mattson also founded Novellus, and was a significant technology architect at Applied Materials. Even though it's a relatively small company, Mattson just ended this previous quarter with record bookings -- one of the few companies that had all-time record bookings. MTSN has seen some excellent progress in several technology areas. For a small cap company, it covers a lot of product areas and has a lot of upside."
For his selection, White states, "My number one choice in the entire semiconductor equipment group is KLA-Tencor. We have it on Lehman Brothers' Ten Uncommon Values list for 1999-2000. It is my number one choice primarily because, in this environment where the push in the semiconductor industry is overwhelmingly to advance the technology and to accelerate it faster than we've seen before, yield management is critical. Even if a chip manufacturer wants to cut back on everything else, it still has to have the inspection tools and measurement tools to be able to keep up with the rapid technology progression. KLA-Tencor has leadership in yield management, which I think it can capitalize on."
Many of the smaller firms have specific fundamental issues with them, White declares, "One of my choices is PRI Automation (Nasdaq: PRIA), which stands to be a major beneficiary not only of the 300mm transition, but also conversions of old 200mm plants to higher-technology levels. PRI is well positioned to take market share. The company has a good market position in the United States and parts of Asia, but I think the next big territory for them is Japan, and it is already beginning to win some customers there."
White continues, "I believe SpeedFam-IPEC (Nasdaq: SFAM) also represents an interesting opportunity. The company has certainly had its troubles, and it has lost market share to Applied Materials. But it also has a new management team, a new focus, a very extensive installed customer base, and a very good process knowledge base in chemical-mechanical polishing (CMP)."
The best sector stocks are attractive to investors with a 9-12 month horizon, Zlotnikov asserts, "We have 'outperform' recommendations on four stocks: Novellus, KLA-Tencor, Applied Materials, and Lam. Within this group you have very different risk/reward profiles. I would say the greatest upside could accrue to Lam Research. Their recently introduced products should help them stem the market share erosion that they experienced over the last year or so."
2) A review of management performance at 25 Semiconductor Equipment firms asked market insiders about the ability of management teams to create shareholder value. In a sector where many management teams are criticized for failing to adjust to the changing landscape, some CEOs receive top marks for their efforts:
Robert Akins, CEO of Cymer, Inc. (Nasdaq: CYMI), earns praise from a financial advisor, "They provide the light sources for printing the circuit patterns, just an absolutely critical technology, and have done just a superior job at executing and dominating this whole market."
Robert Lepofsky, CEO of Helix Technology (Nasdaq: HELX), impresses a long-time follower, "Management is moving from offering individual components to becoming either more of a systems company, or more of a one-stop shop for all of the component requirements in their specific market niche. Very smart strategy on the part of Helix management to implement this strategy change, and it certainly has benefited the bottom line. A very interesting company. Not well known on the Street, not widely followed. Very, very, very good company."
But according to an investment analyst, another semiconductor equipment management disappointed by delivering, "the biggest missed opportunity."
This survey is a unique resource for checking the "Street's" view of senior management.
3) Analyst Interview -- An extensive analyst interview (6,000+ words) with Moshe Handelsman of Advanced Forecasting on Forecasting the Semiconductor Industry, in which he examines the opportunities for investors in the sector, explains his unique quantitative forecasting models' accuracy in predicting industry turning points and provides details about his monthly Semiconductor and Equipment Leading Financial Indicator.
Other firms covered in this special Semiconductor Equipment report include:
Applied Science and Technology, Atmel, Atmi, CFM Technologies, Credence Systems, Electro Scientific Industries, Etec Systems, LTX Corporation, Maxim, Ultratech Stepper, Veeco Instruments and Yieldup International.
To obtain a copy of this insightful 40-page report, see twst.com or call 212-952-7433. This special section is also included in the Technology Sector of TWST Online at twst.com.
The Wall Street Transcript is a premier weekly investment publication interviewing market professionals for serious investors for over 35 years. Available at twst.com TWST Online provides free Interview excerpts. For highlights and recent recommendations by analysts and money managers visit twst.com |
