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Technology Stocks : Applied Materials No-Politics Thread (AMAT)
AMAT 341.36+1.3%Jan 29 3:59 PM EST
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To: Cary Salsberg who wrote (5349)2/5/2003 2:08:31 PM
From: Jong Hyun Yoo  Read Replies (1) of 25522
 
RE: "I am interested in your analysis of AMAT, but I am troubled by your placement of LRCX and NVLS in the same sentence."

Dear Cary,

I concur wholeheartedly that NVLS and KLAC are the better
company than LRCX in terms of product competitiveness.
KlAC has a virtual monopoly in the metrology and inspection
market that will grow at even faster pace upon adoption
of the copper market. NVLS clearly has shown excellent
business execution in previous cycles and is the leader
in the copper front-end processing equipment market. Given
that next upturn will be driven by the copper and 300mm
market, clearly these two companies are positioned well.

LRCX is an interesting story. This company has struggled
in mid 1990's due to poor business management. However,
since Bagley's taking role as a CEO, the company has come
a long way. I believe that LRCX has surpassed AMAT in the
etch market and has very competitive position against
TEL. Since there are three main competitors in the etch market, LRCX competitive position is definitely worse
than NVLS and KLAC. However, you have to consider the
fact that etch process is the most used steps (in number)
in chip fabrication process and as a result, equipment market is big enough to allow more than one vendor to
thrive during the upturn. What I like about LRCX at this
point is that it has really streamlined its business model
by outsourcing just about everything other than engineering. This will essentially allow the company to
attain comparable operational efficiency to AMAT at somewhat lower gross margin point. LRCX has attained 2 billion revenue run rate during last upturn. Let us assume
during this upturn, the company hit 1.5 billion peak revenue. I am expecting 20% operational efficiency. So Net income could be somewhere around 300 million which translates into roughly $2.5 EPS based on 125 million share count. With PE of 20, the share can climb to $50..
I think there is plenty of money to be made in LRCX as well. The real problem is "when is this downturn over?"
I think no one really knows the answer but I am hoping towards early 2004...
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