AMAT
Nice post on AMAT. Sorry for the delayed response, I'm catching up from vacation. If you would permit I want to throw in my two cents. First, I work in this industry. I've worked for AMAT, competed against them, and have been a customer. I am not currently a holder having divested my AMAT shares earlier this year (significantly below the peak alas).
I think your analysis is spot on especially relative to the PS. That induced me to sell. I think it is still too high although I think this cycle has legs through at least next year.
I would like to clarify one of your comments:
However, in practice, over the last 20 years of cycles (which usually last 2-4 years each), there has been little switching away from AMAT. There has never been competition on price in this industry. AMAT's track record argues for the gorilla label.
Actually during this time frame there have been switches away from AMAT (Lam metal 9600 etchers in the early 90's come to mind). There is often fierce price competition especially in downturns. While it is often impractical to switch systems in a capacity buildout, there are often comparable systems to choose from for new fab.
Your point #7 (ie. AMAT nearly able to provide the "whole solution") is valid and I believe is an inflection point in the industry. AMAT is the only equipment supplier able to integrate most process steps. No other supplier is close although TEL might be able to offer some limited ability in this regard.
The value to the customer is immense (even though they carp about not wanting a single supplier.) AMAT recently provided a "Cu integrate process" in a demo to a Taiwan customer. My guess is that this accelerated their time to market by 18 months vs buying various hardware and developing a process. The worth of this acceleration obviates "price competition".
I don't think they are a gorilla yet, but this total solution may allow them to get there. At the moment I think it is safe to call them a king. I believe they will have over 30% market share this year and I don't think (my memory may be faulty and I'm too tired to look it up now) any other company will surpass 10%.
Never the less, I believe valuation matters. In Mike Buckleys' words: the current price is not a "Screaming Buy"... yet. I should expound some in that I believe that the company will grow into this price level, but I'm not highly confident that will happen in the next 1-2 years. At the same time I'm reasonably confident there may be a buying opportunity at 30-50% lower price than todays. OK I know we should be LTB&H, but I feel compelled to make my investments in this particular industry with my sense of the semiconductor market direction.
Since there is a general shying away of semiconductor related companies (excepting INTC) on this thread, I'll end my comments here, but will offer to expound the potential gorilla situation that exists. I will suggest that I'm not sure that any Tornado in this case would have wind speeds of Beaufort 12.
Regards,
FATBOY
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