Ian, RE: Implicit revenue assumptions in your CYMI model
Very interesting analysis. A few preliminary questions about some of your underlying assumptions:
<<It's in the process of ramping to more than 150 lasers / quarter.>>
Last quarter, CYMI had revenues of $50M. Assuming your estimate of $2M per laser and no service or other revenues, that would represent about 25 lasers sold during last quarter. I assume they are producing flat out, as many as they can. To go from 25 lasers in a quarter to 150 lasers is a six-fold increase. How fast can they realistically hope to achieve such a capacity increase given the fragility of their supply chain, unless the chain is more elastic than their lawyers are willing to allow them to admit? [source: S-1/A 4/3/97: "Dependence on Key Suppliers: Certain of the components and subassemblies included in the Company's products are obtained from a single supplier or a limited group of suppliers. In particular, there are no alternative sources for certain of the components and subassemblies, including certain optical components and pre-ionizer tubes used in the Company's lasers."]
OTOH, CYMI has already achieved a nearly seven-fold increase in the
manufacturing rate from December 1995 to December 1996, so there is, at least, historical precedent for such a rapid expansion, even though the earlier increase came off of an exceedingly small base. [source: Risks Associated with Rapid and Substantial Manufacturing Expansion, S-1/A 4/3/97]
<<I believe each laser sells for about 1/3 of the stepper's price. That would put them near $2M each.>>
According to CYMI's S-1/A filed 4/3/97:
"The Company has historically derived a substantial portion of its quarterly and annual revenues from the sale of a relatively small number of systems, which are priced at up to $450,000."
If we assume average selling price of $400,000, again assuming only laser system sales [last year system sales were 96.2% of total sales], we derive 125 laser systems sold during the latest quarter. If we are talking about increasing capacity from 125 lasers to 150 lasers per quarter, this 20% capacity increase seems easily achievable in a one year time frame, especially considering their 600% increase last year.
But here we must question the pricing assumptions built into your model. What is the basis for your belief that the lasers might sell for $2M each, up from the $450,000 maximum spoken of in their April S-1? CYMI is a single product line company. [S-1/A 4/3/97: "The Company's only product line is excimer lasers, the primary market for which is for use in DUV photolithography equipment for manufacturing deep-submicron semiconductor devices."] So how do you explain this 4 to 5-fold pricing disparity built into your model?
Pricing power cannot be expected to significantly increase. Since CYMI currently has about as close to a monopoly as can be imagined, with conservative current market share estimates of over 80% in this infant market, we must assume that in the future, its pricing power can only be expected to erode as competition gradually intensifies, if there is to be any change at all.
Different product, perhaps? If CYMI is currently shipping excimer laser systems for pilot production of .25u devices, are you looking at year 2000 price for laser systems to produce .18 u line widths? Again, I must ask for the basis of your pricing assumption of a 4 to 5-fold increase in ASP by year 2000.
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