Companies behind microchip makers hurting even more
Reuters Company News - January 05, 2001 14:07
By Daniel Sorid
NEW YORK, Jan 5 (Reuters) - Dick Aurelio's humongous ion-spitting machines look nothing like laptop computers, but investors, bracing for a crash landing in the technology sector, are treating them alike.
Aurelio is the chief executive of Gloucester, Mass.-based Varian Semiconductor Equipment Inc. , the market leader in ion implanters, machines the size of two-car garages that are used by virtually every maker of microchips.
Implanters shoot beams of ions into silicon wafers, forming the minuscule switches called transistors that allow microchips to process complex instructions.
"The industry, in the long term, is a terrific industry from both a business and investor standpoint," Aurelio said.
Others, however, are having short-term jitters.
Positioned at the beginning of a long production chain that puts microchips into mobile phones and computers, and then into the hands of consumers, Varian and its peers have been beaten up particularly hard by investors.
Investors are taking pot shots not only at the major equipment makers, such as Applied Materials Inc. and KLA-Tencor Corp. , but also the smaller companies whose sometimes strange-looking products are nevertheless vital to the chipmaking industry.
For instance, shares of Rudolph Technologies , a Flanders, N.J.-based company whose products ensure materials deposited on silicon are not too thick or too thin, have fallen to about half of last year's high.
Westwood, Mass.-based ADE Corp. , whose systems check for problems at various stages of chip production, traded at $15-1/2 on Thursday, off a 52-week high of $27.
Microchip makers such as Intel Corp. and Advanced Micro Devices Inc. also have been ailing as consumers cut back on electronics expenditures. But the companies that make equipment for chipmakers have been hit even harder.
That, analysts said, can be attributed to the feast-or-famine nature of their business.
While chipmakers still sell their wares even during slow times, the semiconductor equipment makers can go bone dry as chip makers cancel or put off expensive capital equipment orders.
It is a three-year cycle usually, Aurelio said, with sales of equipment picking up as chipmakers ramp up production to satisfy technology hungry consumers. Eventually, chip makers decide that the market is flooded and halt their spending on equipment -- until the cycle picks up again.
Last year, semiconductor equipment makers saw their sales jump 76.1 percent, according to a report from The Information Network, a market research firm. But this year, some analysts predict that growth, if there is growth at all, will be in the single digits.
"This is a bloodshed time for equipment makers," Nikolay Tishchenko, an analyst with ABN Amro, said.
WILD STOCK SWINGS
Semiconductor, or microchip, makers and technology companies in general have seen their valuations sink recently, as dot-com euphoria melted away and consumers showed their anxiety about an uncertain economy by spending less.
The Philadelphia Stock Exchange Semiconductor Index has lost half its value since March highs, and the tech-laden Nasdaq exchange has been in freefall mode.
But semiconductor equipment makers, coming off a strong two years, have underperformed even the chipmakers. The Standard & Poors semiconductor equipment index has underperformed the Philadelphia chipmaker index by 22 percent over the last year.
The S&P index includes the major equipment makers, such as Applied Materials, KLA-Tencor, and Novellus Systems Inc. .
Smaller equipment makers like Varian, however, have not been spared. Varian's stock is at nearly one-third of its March value.
Another smaller equipment maker, Kalispell, Mont.-based Semitool Inc. , whose devices prepare the surface of silicon wafers for semiconductor production, has seen its stock swing wildly and is now valued at about half its March high.
And Therma-Wave Inc. , a maker of laser-based testers of ion implantation, traded above $40 in March, but on Friday closed at $15.
Varian's Aurelio, however, insists that investors should look past cyclical downturns and see a much brighter bigger picture.
"Our customers are depending on how many Gameboys and PCs and cell phones are going to be bought. Long term, there's going to be more of that stuff," Aurelio said.
Varian has seen 22 percent average sales growth over its lifetime, he said. Of course, that often came from strong growth one year and a major decline the next, he added.
Analysts seem to agree with Aurelio's perspective.
Semiconductor equipment makers' sales may end up growing, albeit at a lower rate, in 2001, according to several analyst forecasts. Long-term, many of these companies will survive the rollercoaster and end up even stronger.
"Unit volume for semiconductors is always increasing," Elliot Rogers, an analyst with CS First Boston, said. Demand for products like Varian's ion implanters "increases and semiconductor technology increases." |
