Jess - How could I trust anyone who would put ice in cabernet? LOL
I want you to open your ears and close your mouth for a second, I have something important for you. First, though, I was wrong about the book-to-bill. The chip industry stopped collecting and publishing this info some time ago, and now relies on straight new billings. The wafer fab industry, however, still publishes a BTB, and it was down to 1.07 in September from 1.09 in August. My source misreported this as the chip industry.
Okay, I'm not emotional or gloomy about this. I've been following the wafer fab industry for a long time and anyone investing needs to realize that the BTB is going to affect wafer fab prices independent of fundamentals, because Wall St. uses it for industry assessment. I'm a fundamentals investor and they will always prevail in the very long term. However, no matter how good or bad Cymer's earnings, the lowered BTB is going to depress the stock price, the same way rising interest rates would. And if it falls again next month, Cymer's price will fall again. You can talk until you're blue in the face about .25um fabs and DUV and so on, your stock is still going to be worth less.
Analysts have built a rising BTB into the high current valuations for wafer fab stocks. We've seen a mammoth ride up and valuations of 30x to 100x based entirely on future earnings - just look at companies carrying negative trailing earnings that have run up. Any bad news for a stock or an industry at these valuations and they will drop fast.
So no matter how good Cymer's earnings or the inapplicability of the BTB to Cymer, its price is going to be lower for a while. If it has a good earnings report, it will rise in value, but not as much as it would have. Unlike the earlier analysis of slowed stepper deliveries, which an earnings report could dispel in a stroke, this is a perceived measure of growth in the mid-term to long-term and will not be affected much by current earnings, which the street will see as reflective of prior periods of growing BTB.
I keep a private index of wafer fab stocks and they got nailed pretty hard yesterday. If the BTB falls again in October, the street is going to perceive downward future momentum and prices will fall off fairly hard, and I'm estimating 20% . If the BTB should go below 1.0, most of these stocks are going to decrease by a factor in the 50% range.
I agree with you that the industry is healthy in the long run. But no matter what else you think, if you are going to invest in this area, you need to understand that this factor is used by analysts and will drive down stock multiples and therefore prices, independent of other factors. I see a thousand people complaining about PRIA and KLAC and everything else getting hammered yesterday, and most of them don't have a clue as to the reason. And they have invested their saving in these companies!
And you also need to realize that, at some point and for a period of some months, the BTB is going to decline and these stocks are going to lose market value until the BTB comes back up. The industry is very cyclical and the high multiple prices are very sensitive to the cycle.
So I hope this will help everyone make more money. I hope I don't sound patronizing but this matter is quite clear to me and made me a bunch of money by buying when the industry was in the doldrums 12 months ago, because I remembered the opposite of what I'm saying now. That is, the cycle goes up after it goes down. Now, we need to start remembering that the cycle is going to go down after it goes up. This current downtrend may be just a blip on a continued upside -- I can't call 'em that close. But be careful at these high valuations based on future performance and realize that any indicator of future slowing is going to cream high stock multiples.
PS - Infrastructure's remarks were made just before the BTB was reported. Intel's earnings did slightly affect this segment, but that was two days ago. Yesterday's sell-off was primarily a BTB problem. |
