Gorilla and King Portfolio Candidates Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Uncle Frank who wrote (26795)	6/26/2000 6:12:00 AM
From: FLSTF97	Read Replies (1) of 54805

AMAT becoming a gorilla? I'd like to offer my perspective on this but first an explanation of the status quo. AMAT will likely garner over 30% of the entire frontend (chip making part versus packaging) cap equipment market. Thus even if they were to become a gorilla, the potential growth is limited compared to say an early gorilla Cisco or Microsoft. They could double or triple (unlikely)and then continue to grow at around 15%. So the question (I'll ignore the tornado issue until later) is can they develop proprietary architecture? I think most folks who consider the IP of an equipment company think about hardware patents or designs. On a whole I don't think AMAT has any clear superiority in this regard. IMO the more relevent consideration is IP in the process flow. By this I mean the knowledge to optimally process a wafer coming from a specific upstream process and then feeding it into downstream processes. At this point AMAT is the only semi cap eqpt. company that can internally replicate the entire semiconductor process stream. Furthermore there is an accelerating frequency of AMAT tech papers and news release that demonstrates their ability to optimize a series of process steps to produce improved device yields or parametric properties. They can now deliver a turn key set of equipment and processes to produce certain processing groups within the entire process stream. I suspect they are less than 3 years away from delivering a complete turnkey system (equipment and processes) for some major device type. When you consider that many devices these days have lifecycles measured in months, the time to market value of this offering is immense. Even if they don't deliver the turn key system they posess enough process knowledge to be able to hinder the functioning of competitor's downstream equipment. Even before AMAT had their minifront end lab, I witnessed this ability. Without naming the parties involved, I can say that AMAT was able to tailor a deposition process such that their competitors could not remove it cleanly while AMAT's etchers could. This was 7 years ago. They've only gotten better. None of AMAT's competitors are anywhere near having this ability nor do they seem to be working toward it (TEL maybe, but I have no personal insight). If AMAT is successful (and I think they will be) in delivering what is the "Total Solution" (their words actually) it will trivialize the competitor's "Best of Breed" arguments. Time to market value alone will trounce the isolated Cost of Ownership and process capability benefits from a jumble of manufacturer's machines. In summary I think AMAT will end up with a special set of IP that gives them tremendous leverage (more than they already have!)but it will not be because of in situ metrology alone. Now let's talk tornado. It's hard to conceive of semiconductor capital equipment as not having crossed the chasm or even in an early growth stage. Afterall the first solid state device patents occurred in the 1920's and IC's have been around for almost 40 years. However...the transition to 300 mm wafers will lead to paradigm shifts. As lrrp referenced, on board metrology becomes essential. The wafers are just too valuable to trash one. More import for 300 mm is that due to the cyclical nature of the business many (including major players like LAM) eqpt. manufacturers put off 300 mm development programs. At the time those decision looked smart, but 300 mm is beginning to ramp. Next year should see operational fabs increase from 1 today to 8 next year. Still a drop in the bucket but the way eqpt. selection works is that those selected in the early phases have a near lock because the eval process is so expensive and lengthy. All those 8 firms are major players and with the industry consolidation/ transition to foundries will comprise an even greater share of the TAM going forward. Now here is AMAT with not only the equipment ready but process integration available if you buy the "right set of equipment". These fabs are even more expensive ($2-3 bil each)so getting output faster is the name of the game. AMAT will be able to make economic arguments/ perhaps even guarantees that the competition can't match. I believe that because of AMAT's unique system IP that they may be able to attain a de facto gorilla lock on their customer base (possibly even their supplier base). Even though I question the upside growth potential in this scenario, I should point out a wild card. If AMAT succeeds with this model, you can bet that they are astute enough to capture value that exceeds that of the current equipment market. Since equipment manufactures essentially give away processes that are invariably tweaked by the customer to match the other equipment/processes in their fabs, it is hard to quantify the value of the turnkey system. It is without a doubt higher than just the equipment market. Having said all that, I am not suggesting that anybody run out and buy AMAT. At this point I have closed all long positions in AMAT. Not that I see anything wrong with AMAT per se. I just think the valuation is too high on a historical basis. The bulk of 300 mm decisions will be made within the next 2 years. There is ample time to evaluate who the winners will be. It is also not out of the realm of possibility that an industry downturn may occur in this time frame. This upcoming transition in this industry will be the most interesting one yet. It may also give rise to another gorilla, but the investment potential vis-a-vis other gorillas is not clear due to the industry maturity. FATBOY

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next