Spary65,
Darn! I wrote a really long note, and then could not get it accepted on this Thread, and then lost 1/2 of the draft note!
Here is the second half of my note anyway...:
An interview with Stanley Myers, president of Semiconductor Equipment and Materials International by Investors Business Daily:
Chip Gear Sales Are Revved Up By Wide Wafers
Date: 6/23/97
Author: Michele Hostetler
The chip equipment industry is beginning to rebound after stumbling last year.
New technology and increased demand are fueling the comeback. Chip
equipment makers have moved from simply selling products to chipmakers to becoming an integral part of the manufacturing process.
A few years ago, not many people had heard the slogan ''Intel Inside,'' which touts Santa Clara., Calif.-based Intel Corp.'s speedy processors.
''It's time we made sure people know we're inside of Intel,'' said Stanley Myers, president of Semiconductor Equipment and Materials International (SEMI), a 2,000-member international organization based in Mountain View, Calif.
Myers recently discussed with IBD the equipment industry's comeback, as well as the move to 300-millimeter wafers, from which chips are cut.
IBD:
How are equipment sales going? When will they pick up?
Myers:
We think it's already happening. We think we'll be back to double-digit growth in '98 and '99. I think then we'll be back at a level that's really, in my mind, the true sustainable growth in our industry, which is in the 20% to 25% range.
Now with things like 300-millimeter (wafer technology) and other fabs
coming on, we're likely to bounce ourselves, like we did before, well over that sustainable growth level. That then means there will be another correction, if you will, another adjustment that will come at sometime in the future.
IBD:
What's fueling the upswing?
Myers:
A lot of things. . . . It's being driven by new technologies, yield improvement, cost reduction, as well as (the move to) 300-millimeter wafers.
New technologies certainly would be CMP (chemical mechanical processing) technology. That's a type of polishing (taking place) not on the raw sub-straight wafer, but polishing downstream after fabrication. It allows for the shrinking down to smaller line widths . . . because it's smoother.
Then (there's the whole drive to) smaller and smaller line widths on the horizon. Whether you (build) 200-millimeter or 300- millimeter wafers, it still is a challenge for us and our customers, the chipmakers, to get to.
IBD:
When could that next downturn occur?
Myers:
I would say . . . we're talking (about sometime) past the turn of the century.
IBD:
When do you expect chipmakers to use 300-millimeter wafers?
Myers:
It's really taking off as we speak, in terms of equipment (test) site
development at equipment houses and consortia. You're beginning to see sets of equipment tested and benchmarked. We really believe that calendar year '98 and '99 will be years of pilot lines.
IBD:
What does 300 millimeter mean for the industry?
Myers:
It's higher productivity. Device makers effectively get three-quarters more diameter of the surface area by going up to 300 millimeter. Hopefully what it means is you'll continue to get more memory (chips) for lower cost. That's really been the heartbeat of our industry. We've been able - through equipment, material and fabs - to continue to kick out more and more memory and come down a cost curve.
IBD:
How difficult is it to develop equipment for .25-micron line widths? A human hair is 100 microns wide.
Myers:
Every particle that's now accepted on a wafer (that is produced using) 0.5 micron or greater (line widths) is probably forbidden when you go down to the smaller line widths. I think it's related to cleanliness and flatness. And measuring equipment has to be developed to determine even what the wafer can take.
When you start coupling the technology challenges of smaller line widths with the challenges of larger diameter wafers like 300 millimeter, those two things are a huge technical challenge. Maybe it's the biggest industry transition in chip history.
___
Now Myers says two things of interest to FSII and SMTL shareholders. First he says orders are already picking up and revenue growth rates will be sustained in the 20-25% range. Second he says the keys to moving to the 300mm wafers will be cleaning and flatness, and perhaps measuring that element. Now cleanliness speaks to both SMTL's Magnum and Wafer Cleaning and FSII's Mercury tools. I.e., they are in a good market niche with these tools. (Also assuming that FSII can overcome SVGI's lead in lithography equipment, then that is expected to be a very big equipment niche market over the next five years).
However neither FSII Nor SMTL have confirmed the predicted 20-25% growth rates as of yet. FSII is closest with today's announcement. SMTL's backlog on the otherhand slipped last quarter from $90 mm to $82 mm. I.e., SMTL has yet ot confirm the good growth rate. SMTL's strongpoint however is that their capital improvement program is winding down (helping profit margins), quarterly earnings are rising, and they have beat analysts' estimates on the upside for the last two quarters.
FSII's weakpoint is the financial problems. In my experience financial trends whether good or bad, tend to carry on for a number of quarters before resolving themselves. (And that's why I favor SMTL over FSII).
So the individual problems make both FSII and SMTL "show me" stocks to the professional money managers- generally excellent products and in good market niches, but neither is "firing on all 8 cylinders" yet. Finally, if you take the NASDAQ and break it down into say five categories based upon market capitilization, the you see one fundamental item of interest too:
The larger the market capitalization, the larger the rate of return this year (and last year too). Both FSII and SMTL are smaller cap NASDAQ stocks. Now whether you or I invest in FSII or SMTL depnds upon your perspective on this price appreciation dichotomy: if you are a "momentum" investor, then you'd probably shy away from FSII and SMTL.
Now if you are a value investor like me, then the low P/E ratios versus potential growth looks appealing. The "hook" however is the following: some "value stocks" look great, but for whatever reason, never make a move upward. Other svalue tocks when they move, burst upward in a furious one or two day explosion, and then settle in at a higher price level. So if you want to invest in either FSII or SMTL, then like fishing in a pond, you have tosnuggle in and be patient.
Alternatively, look at the price swings of FSII and sell it near the top of the range and buy back when it drops. You'll do OK that way too, except that you will miss the big upward turn if it comes. If FSII is a "flatliner" like a dead person, then sell call options every month. Some people only buy a stock like A,T,&T which doesn't have much of a whip, and just sell a call option on it every month, month in and month out....
Sorry for being such a windbag... Joe what do you think?
Sincerely,
Doug F. |
