Kirk,
The current business environment for LRCX is extremely
robust. Booking situation in the Asia for LRCX looks
excellent especially in Taiwan and Japan. The stock
should move higher in the near term given that the
January and March earning outlook is very rosy. Beyond
the March Q, I am not sure how the booking trend will
change. If we see a little leveling-off with the booking
growth rate, the stock could correct. However, one should
use any pull-back to establish more position. Even at this price, I continue to believe that LRCX is the best valued company among large semi-equipment companies including
AMAT, KLAC, NVLS, and ASML.
1) The current strength in the equipment business
is in Asia especially in Taiwan and Korea with Japan,
Singapore and Malaysia also beginning to look more active.
Fortunately for LAM, Asia happens to be its region of strength. LRCX Poly and metal etch business in major Taiwan
Fabs continue to look strong especially with new improved
9400 PTX poly etchers. Also New oxide etcher, EXELAN, is
being accepted well and many systems in are evaluation.
I believe that many of the evaluation systems will lead to
additional orders. I belive that LRCX has successfully
stopped market share loss in all etch segment and now
in the position of taking share back from AMAT and TEL in
Taiwan.
2)LRCX's CMP systems has been announced as a tool of record
for Copper at TSMC sometime ago. Given that at TSMC, AMAT has a very strong presence and it has been working with TSMC on the developement of the copper process, the
previous win at TSMC is truly significant for LRCX. UMC
has been working with Copper Alliance (NVLS, LRCX, and
SFAM) for the copper process developement. My feeling is
that LAM is going to get some nice orders from UMC in
the near future. The Copper war between TSMC and UMC has
begun and LRCX should do well with the copper CMP orders
now that it has a strong presence at both TSMC and UMC.
3) The situation in Korea looks quite interesting. I
believe Samsung has just announced the equipment selection
for the phase 1 of Fab 10 in Keung. I am not aware of all
order decisions in all segments. However, I have been told
that AMAT and LRCX surprisingly took majority of the
orders in the oxide etch leaving TEL in the last place.
I don't know if all LRCX's order was EXELAN
vs. 4520 XLE but I hope that they were EXELAN's. If EXELAN
performs well in Samsung for phase 1, I believe the
larger order opportunity for phase 2 could be there for LAM.
In addition, Hyundai is going to fill up and upgrade fabs now that the merger with LG is behind. Traditionally Tel's
presence in LG fab was strong since LG fabs were exact copy
of Hitachi fabs but now that the purchasing decision will
be Hyundai management team, TEL's dominance in LG's fabs
could vanish and LRCX and AMAT can secure more orders. But
we will see what, in fact, develops...
4) The the major equipment companies especially AMAT and
KLAC currently have record booking and highest gross margin in their history.
Even though those companies' management are very competent,
these companies earning growth will now just follow the overall industry growth given the limited upside with the gross margin and operational efficiency. However, LRCX has
much more room for improvement in the area of gross margin
and operational efficiency. These improvements coupled with
faster than average revenue growth rate due to the market
share gain in the oxide etch and CMP business will give
a tremendous boost in LRCX's EPS. This, in turn, will lead
to higher multiple allowing the share to appreciate faster
than the competitors. I am hoping to witness this in January
and March earning conference. |
