Gunnar Miller of Paine Webber extimates 97 earnings at .36 for the year and .85 for 1998. I have said before that the leverage for this company is huge - meaning that if orders exceed their plan, huge profits drop to the bottom line. This is what happened in 1996. Now they are falling short of their plan for FY 97, losing or holding market share in a market that hasn't really recovered. Their share according to Miller is 10 percent in Microlithography (a $1.5 Billion market), 5 % in Surface Conditioning ($1.5 Billion market), and 40 % in Chem Management (about a $150 Million market). The success of the company is in its ability to gain market share in Microlith and Surface Conditioning. The microlithography business is down this year and per Miller is estimated that it may come in at $85 Million, down from $138 million. While all three segments of the business are down in 1997, it is the performance of the Microlithography business that is hurting them the most. This, in addition to the added burden of two new buildings, is killing the bottom line. Staff reductions and attrition of people have helped to counter this some, but what they need are new orders. The capacity is in place to rapidly ramp up if the orders come. But the question is, do they have the right equipment set to capture the new fabs. Have they kept up during this downturn, or have they been passed by? Applied Materials is developing their own system to compete with the Microlithography business. If FSI can grow it's 10 percent market share as the market recovers to 20 percent, Microlith could be a $600 Million business by 2000. I am of the opinion that the world has passed by FSI's surface conditioning wet processing systems, and is not ready to accept its vapor and dry tools in any appreciable quantities.
While I hope the company does well as I have a major position in the stock, I think there are major risks here. And that is what is being reflected in the price. |
