Crappy stock performance does mean that management has screwed up in some way. Here are some of the ways I think they have.
First off, they absolutely, totally mismanaged the initial push-out. Remember them pulling out of the investor conference? That was a fiasco. They let the stock crash for over two days while they refused to comment. Was or wasn't there a fire? Were the lasers defective or not? What the hell was going on? Their subsequent explanations had all the reassurance of a deer caught in the headlights look. To protect Nikon and Canon, they continued to tell us that it was a minor blip on the road when in truth the push out was major.
Soon afterwards the Asian financial crisis hit and the stock continued to decline. Management downplayed the possibility that a correction might be in the cards, insisting they had good visibility even though the analysts were now calling it major. I remember them getting DLJ to come aboard to help support their thesis. I remember saying to myself, now I'll find out whether management has the ability to forecast its business. They didn't.
I think they screwed up because they kowtowed to Nikon and Canon. Tell me they didn't know both manufacturers were having problems building their first steppers? And if they didn't, they should have; after all, they were helping build the steppers. Nevertheless, they let both manufacturers order way too many lasers during this initial phase in a blatant attempt to freeze out ASML who was capable of building the new DUV steppers. Tell me they couldn't see that that was going on? (Maybe they didn't, otherwise they wouldn't have spent the money to upgrade their facilities for manufacturing quantities that wouldn't come into play for years. But that in itself is another miscalculation.) Anyway they let Nikon and Canon get away with it because they were too fearful of Komatsu. So let's say the whole monopoly angle was a mirage and mismanaged if you get outleveraged by laser vaporware.
Then when both Canon and Nikon got hit in the financial and manufacturing crunch, who took it on the chin with write-offs? Who basically got stuck with the inventory because CYMI had to continue to play nice so as not to ruffle the Japanese and lose out to Komatsu? How many quarters of write-offs did CYMI have? Then when I called after the third one, I think, I asked will there be any more? No, I was told. Bingo, two quarters later, more write-offs. This time when I called, I was told well, we won't make that mistake any more. We won't say that there won't be more write-offs.
I also asked them years ago if it might not be in the company's best interests to pursue other uses for DUV lasers besides semi-cap equipment. Then the company wouldn't be subjected to the wild cyclicality of the sector and wouldn't be dependent on a single product. Surely there are other uses. They replied that they were not interested in the slightest, that the market for lasers was so huge that there would be plenty of future earnings. That I continue to believe is a mistake. Zeev Hed and I had a discussion about this years ago. You've got all these scientists working for you, why not a few thinking up alternative uses? Don't be stuck in a narrow box.
I also think that during the upturn they failed to aggressively sell the company to the market. I think they were unsure and still frightened by what had happened and decided to lay low and play it safe. Now it seems clear to me they were unable to leverage their "monopoly" status in either a financial, equity, or new product sense. CYMI was always going to be a niche player and the window for stock appreciation was going to be small, unfortunately, I think now we're at the size of a porthole. I don't think management acted with the urgency necessary to take advantage of the opportunity. Issuing press releases about memorial Japanese parks in San Diego may endear you to Nikon and Canon, but it won't do much to excite investors. |
