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Technology Stocks : Keithley Instruments

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To: patrick ertel who wrote (5)	7/28/1997 9:31:00 PM
From: jsabelko	of 10

I agree that the rest of 97 may be a little weak for semis especially through the summer months. I also agree that many semi and semi equips have become rather expensive and I too have lightened up in the last month selling my holdings of LRCX and ASYT and 50% of BRKS. I still hold BRKS, ASEC, and SVGI in the semi area. I also cannot argue with your numbers as they all seem accurate. However, there are some positive signs for the company. For starters margins have been down considerably in the past few quarters due to poor sales growth, high R&D, and the role out of several new products both in semi and other elect measurement divisions. These new products include both the Quantox semi test system which opens a totally new market for Keithley and the new version of Keithley's APT system along with new products in other areas including the Smartlink and a line of gas detectors which also represent a new market. This series of new products has opened up the opportunity for substantial new revenue growth and improved margins in the next 6-12 months. On top of this, the consolidation of their Metrabyte division should result in some additional cost savings beginning in the next quarter. Management seems to agree as they indicated in their recent release that margins should continue to improve in both the fourth quarter and in 98. Also management has indicated that the new telecom products are being well received and interest in their new semi test equip is improving. The recent order trend seems to verify this statement as orders have increased for four consecutive quarters. With this in mind, an investment in KEI at this time may not be prudent for the classic value investor in that it is essentially a gamble on the success of these new products as they hold the key to improved revenue growth and margins. However, based on recent order trends and the strength of the new products I'm willing to make this gamble. I'd keep an eye on KEI as it could easily slide to the 9-9.5 region sometime before next quarter earnings. I made my initial investment at 8.25 but may add more if it moves below ten. Good luck. joby

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