Ed, you might be right that we could see a plateau period
in which order number could level off. And you are right that
we could see a little sell-off or profit-taking. My opinion
is that one should use this sell-off as an opportunity to add
more to one's position.
I believe that we are now at the early phase of mild upturn,
which will be followed by more robust spending towards
late 2000. This year, I believe is analogous to 1994 where
we started a mild upturn followed by very robust
revenue growth in the year 1995 and 1996 by all equipment
makers. All equipment manufacturers stock price went up
siginificantly in 1994 and many people took profit,
only to see their stock double a year and a half later.
At this point, equipment stocks are not cheap. As a result,
it becomes very important to stick with those companies with
best ability to grow EPS. If I had to choose four companies,
they would be KLAC, AMAT, NVLS, and LRCX. Out of those four,
you can guess that LRCX is my favorite even though I do own
AMAT and NVLS as well.
Remember that Jim Morgan of AMAT told us that his company
can achieve the revenue of 10 - 12 billion in 2003 from
current 4 billion. You can see that we are just starting
boom period in this sector. I also believe that LRCX can
achieve a revenue figure close to 2 billion at the
peak of this cycle. Remember in 1996, LRCX was 1.2 billion
company with head count close to 6000. At that time, LRCX
had EPS of roughly $4.00.. This was with a terrible operational inefficiency, low gross margin, product transition issues to alliance platform, and falling etch
market share. Since then, the situation drastically
has changed. The transition to alliance platform is
complete with much of the mechanical reliability issues
resolved. We have new products in the pipeline to further
grow the revenue number (TERES, EXELAN, and maybe new 9100
oxide etch in early next year). Gross margin and operational
efficiency has been improving. And finally head count has been reduced to 2800.. All these translate into tremendous
earning leverage. If LAM gets back to the record revenue
number of 1.2 billion, I believe that LAM can do somewhere
close to $5 a share. If LAM does 2 billion in revenue number, EPS exceeding $8 is not unreasonable. you can give
any PE ratio you want 20 ($160), 25($200), 30($240)... But you can see that all these numbers are significantly higher
than the current stock price. |
