The CMOS claim to fame is the use of smaller, cheaper and much cooler CMOS (complementary metal oxide) technology in their testing equipment. They have lower initial and operating cost and a smaller footprint (take up less clean room space). Competitors use faster, higher resolution but more expensive and much bulkier and hotter bipolar technology. CMOS is winning slower in the test area than in minicomputers (DEC, HWP, IBM, etc. all moved to CMOS while the old Prime Computer which merged with Computervision (CVN) stuck with ECL (emitter coupled logic) till the bitter end. CMOS technology will eventually win the test war (IMHO) but it will take longer than the minicomputer war. CMOS edges aren't like bipolar but CMOS (the company) keeps improving the technology and has gotten up to 200Mhz. This is better than what the bipolar guys thought CMOS could do some years ago.
Currently, the front-end equipment book to bill is over 1.0 and the test book to bill is 1.60. This last number appears to be gigantic, the only front-end company with that kind of book to bill is CYMI (the excimer laser firm for 248nm and 193nm) but unfortunately the sky-high book to bill is not THAT great. When semiconductor fabs are built, the front-end stuff goes in first and then last comes the test equipment. The huge book to bill that we are seeing is partially the equipping of already started fabs. The REAL lead indicator is the front-end. AMAT had a book to bill of 1.16 and are a third of the front-end segment of the market but recall that they had a single $100M order from TMSC. If you look at the rest of the industry, orders are ahead but modestly. My interpretation is that the test guys are going to see a bubble of demand that they will ship down over the second half of 1997 (the CMOS story has always been a 2ndH story anyway) but then continue at a more modest pace.
As for the advice of professionals, I think you would do much better doing your own research. The track record of the pros in general is very poor (I don't know Murphy's particular track record though). Remember that index funds and the AIM mutual funds don't do ANY research at all but still beat 63-77% of active managers who do research. Some pros do unbelievably superficial research but are adept at faking expertise. There is a Boston portfolio manager (I'll refer to him as Fred the Fraud) who recommended Perceptive Biosystems as a long and IBM as a short in 1994. PCEP (or is it PBIO?) was DOWN 86% and IBM was UP 43%. IBM was the number one DOW stock that year. Fred the Fraud is still viewed by his firm as an expert even though he tried to get his firm into AAPL, NOVL, etc. and almost single-handedly kept them out of CPQ, MSFT, IBM etc. I don't think you should trust anyone who is perceived as being an expert because people (especially Boston Globe reporters) are very naive. Try to finagle some free subscriptions to the trade rags like Communications Week, Electronic News, PC Week, etc. and use the vast array of internet available resources to do real research. The Wall Street kind isn't reliable enough to use and when you do get it, the information may be too old to be worth it any more.
If you want more proof of how bad Wall Street research can be, ask to read a report on Time Warner (TWX). EBITDA stands for Earnings before interest, taxes, depreciation and amortization. Wall Street estimates TWX cash flow by ignoring interest payments (or interest income). This means TWX that has $15BN in debt is put on the same level as MSFT which has $9BN in CASH earning interest income. Wall Street ignores taxes even though firms pay CASH taxes to Uncle Sam (which is usually lower than the accrued taxes). Wall Street adds back depreciation but IGNORES capital spending! Do headend, amplifier and cable firms GIVE TWX free equipment? Recently even John Malone of TCI (a cable competitor to TWX) started including capitial spending in discussing cash flow. Why couldn't those experts/bozos figure it out years ago? And last but not least, any cash flow analysis has to account for working capital requirements, inventory turns and receivables aging (Days Sales Outstanding), etc. I know of another "pro" who fancied himself the world's greatest cash flow expert. He didn't even know what a DSO was or the inventory turns of the companies he followed. He did believe in EBITDA however. Whenever I hear a persuasive, articulate, credible professional, and am tempted to trust his/her advice, I just remember EBITDA and the index funds and I get skeptical again really fast. Maybe not as fast as bipolar but maybe as fast as CMOS technology. |
