Ian, I am quite positive on the industry, I just think that the price peak will not be higher. Look at my rationale, during the peak year of 1995, new wafer fab starts amounted to $31 Billions (of course not all were built, Lehi and few others were mothballed). Right now, at least for the last quarter, the announcement rates indicate about the same level of wafer fab starts, about $31 B, and some industry "mevins" believe that it might even go another 50% above that (I suggested a peak of $40 B, if you remember). The difference is that at the 1995 peak, AMAT's peak price was $12.5 (split adjusted), and at the subsequent 1997 mini-peak (when wafer fabs announcement were much lower than in 1995), AMAT's split adjusted peak was about $24. Now the peak is, so far about $115, more than 8 times the peak of 1995, but fabs starts are going to be "only" 50% higher than in 1995. I'll grant you, AMAT has absorbed a number of companies since then, give that a multiple of 2 (number of shares have also increased, you may want to do the same exercise if you have the data based on market cap, which is more rational, but is going to show a greater horror story of excesses), and for the 50% higher level of fab starts you get a rational factor of 3, not 8. I'll give you a factor of 4, assuming that 1995 was undervaluation (it was not), AMAT rightful peak should still be no more than about 50, rather than $115. I would say that when the market offers a steady stock like GM (steady long term growth around 10%) at 9 times earning, and GM's cyclicality is much less than that of AMAT, it will be difficult for AMAT to better its recent peak.
Zeev |
