But the analyst, while acknowledging that momentum in orders, revenues and earnings remain consistently ahead of market expectations, thinks pricing pressure in the company's spares business could undermine profits for the June quarter and beyond.
The spares product line consists of items like valves and fittings for vacuum cleaners, which account for 8% of Lam's $1.5 billion in annual revenue, Morgan Stanley estimates.
Actually he's not referring to "spare parts" (an oil filter or fuel filter is NOT a spare part)- it's consumables like electrodes and ESC (electrostatic wafer chucks) that clamp wafer to lower electrode while using helium backside cooling to control wafer temperature.
Lifetime of these components (consumables) is on the order of xxx wafers and consequently customers with high wafer throughput will look for (cheaper) alternatives.
however in case they run into problems with "second source" parts they won't get the support from LRCX.
Manufacturing these consumables (which could have serious impact on yield in case they fail) requires extremely stringent requirements.
Again even this aspect parts/consumables and IP relate to those parts was discussed in CC.
There is hardly any "hands on" experience among the analyst community and they claim expertise on issues and things they completely lack.
They are all more or less beancounters who eventually hired some engineers with industry experience that do the grunt work for them.
Supposedly Sue Billat was an analyst who actually had industry experience - just googled and guess what she ended up at Ultratech
Sue Billat Joins Ultra Clean Board of Directors
Menlo Park, CA - May 17, 2004
Ultra Clean Holdings (NASDAQ: UCTT) the parent company of Ultra Clean Technology Systems and Service, Inc. today announced that Sue Billat, principal of Benchmark Strategies, has joined the company’s board of directors, effective March 2004.
"Sue brings an incredible wealth of semiconductor equipment industry knowledge to our board, having served as both an industry executive and an independent analyst,"said Clarence Granger, UCT’s president and chief executive officer. "We are very honored to have her join us."
Billat is principal and founder of Benchmark Strategies. She was a senior research analyst and managing director for semiconductor equipment and foundries at Robertson Stephens, where she worked from 1996 to 2002. Prior to joining Robertson, she was senior vice president of marketing for Ultratech Stepper. She serves on the board of directors of PDF Solutions. Billat holds bachelors and masters degrees in physics from Georgia Tech.
I doubt LRCX part/consumable business will break LRCX back.
besides it's a double sided sword.
It's not a good idea to milk customers with high margin consumables because:
1.) it increases cost of ownership for the customer; cost of ownership is one criteria when selecting equipment
2.) overpriced consumables push customers to look for alternatives = second sourcing
Spares/consumables should never be a profit center - of course they should receive a fair price for the service they provide but it's foolish and short sighted to milk customers because they will look for alternatives.
perhaps Morgan Stanley analyst Timm Schulze-Melander should be transferred to the commodity division and help pumping (up) crude.
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