Bo doesn't know this? What a shame! -g- (Sorry, I couldn't resist)
SemiEquip biz comes down to cycles normally last for ~4 years. Surprisingly, the last cycle lasted less than 2 years and the equipment companies saw light within one year since they saw a down-turn. Thanks to optimistic expansion of 64 Mbit and higher DRAM fabs, and to some extent, microprocessor fabs (Intel, AMD.) The main players in these business and other contract manufacturing business (who mfr for fabless entities) had to upgrade in order to remain competetive and/or stay ahead.
As it turns out, everybody (mainly DRAM cos, not mpcs) has the same business plan. The result is a glut in chips. Current spot prices for DRAM are $4.35 and are expected to go below 4 very soon. FYI, the self-proclaimed low-cost producer, Micron's cost is about $4.00. Below $4.00 I doubt if anyone makes money. Cross-over to higher priced 64 Mbit DRAM's hasn't occured yet. Even if it does, profitability in 64 Mbit DRAM is remote because of supply demand imbalances. Jerry Denkera, an DRAM trader (not the stocks) and an authority in this matter, I might add, has to say the following about the pricing:
techstocks.com
It is hard to justify further spending when you are not making money on your current huge investments. With that picture in mind, it is very possible to see several push-outs and order cancellations from atleast these DRAM firms. No doubt some companies, including the big guys like TXN, Intel keep spending to stay ahead. That is not a bullish case for MAT and LRCX, rather it prevents them from going bankrupt. -g-
In the past two cycles, the equipment companies derived most of the business from memory chip companies. The glut and Asean economy turmoil won't help for the orders going forward. Taiwan and Korean chip companies are significant buyers of these equipment. They are now hurting from two fronts: lower pricing of the chips and economy turmoil.
This guy, Lone Star, is an authority on semiconductor equipment biz. He is also a bull on AMAT. But he is not a trader. He is cautious about the industry prospects now. This is what he has to say.
techstocks.com
To keep you busy for entire afternoon, I have assembled a few links in which I have discussed how it unfolded for the chippies and equipment companies during the last cycle. I have no reason to belive that this time it will be different. Regardless of what the short-term and intra-day trading action suggests.
techstocks.com
techstocks.com
Remember one thing, AMAT, LRCX and other equipment companies trade on forward orders. Trailing earnings mean nothing. Initial signs of trouble were already reported by KLIC and KLAC. I think it will be a repeat pattern.
While you are at it, check this out. This is not something about stocks, but it is about my philosophy about lurking on SI.
techstocks.com
Good luck!
-Mohan |
