I just looked at KLIC's report and noticed that they had negative tangible net worth. I had decided to make some comments on KLIC and, here, Scott serves as a straight man.
The issue of KLIC vs AMAT serves as an investment primer.
1. Front End vs Back End - Moore's Law occurs at the front end. The technology is more difficult and more valuable. The unit costs of the tools are much greater and the delivery schedules longer and more stable. Front end companies have greater sustainable competitive advantages, more significant barriers to entry, and a business model that supports a cleaner balance sheet with greater flexibility to deal with an adverse market.
2. The balance sheet - Before I really understood the ideas expressed in #1, I could tell that there was a difference between KLIC and AMAT from the balance sheet. Key relative numbers are cash, debt, inventory, and capital costs (land, buildings, capital equipment). I could tell that there was a similar difference between semi equipment companies and semi companies. Some fabless semis and some analog semis look more like semi equips then their "real men" brethren.
3. A Good Company - There are many "good" companies with excellent management that don't reward their investors. Most of the reason is the specific market and business model. It is very unusual for a company to have a sustainable competitive advantage or significant barriers to entry or a business model that allows for a healthy balance sheet and flexibility and profitability during difficult times. In technology, the few that have these prosper and most of the others eventually fail.
4. The Investor - To expect success in technology investing, the investor needs know what company attributes to look for, how to recognize them, and when they are actually there. The investor must "know thy self". Know what you know and know what you don't. Know when what you know is sufficient to make an investment decision and when it is not. |
