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Technology Stocks : Cymer (CYMI)
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To: BillyG who wrote (6112)10/24/1997 1:15:00 AM
From: Maxwell  Read Replies (2) of 25960
 
Analysis of CYMI's CC:

Q3 earnings of $0.23 on $57M in revenue was good but not a blow out. However the fundamentals are intact.

1) CYMI sold 126 lasers in Q3. At a price of $450K/laser, this translated to $57M in revenue. Thus CYMI hasn't realized any revenue on the service and parts (S&P). I don't expect them to since the laser doesn't need service until 180 days (cavity changes). Most of the lasers were sold in Q2 and Q3. Thus you will see some S&P revenue for lasers installed in Q1 (about 60+ of them at about $40K per piece). Thus at least $2.4M in S&P will be added to Q4 revenue.

2) Profit margin suffers is no big deal. In the ramp up phase additional costs is needed to buy new equipment and building. Benefits will come a few quarters later when CYMI benefited the economy of scale. As a matter of fact CYMI executed beautifully since the loss in profit margin was minimal.

3) Backlog decreases may causes some concern but if you look closer this is expected. CYMI has decreased its cycle time in producing lasers. Thus they can get the laser to the customer faster. Stepper makers therefore have no need to increase their backlog order. As a matter of fact stepper makers will order as much as their customer demand given 4-6 months delivery time.

4) Since last Semicon, CYMI's rep confirmed that CYMI can produce 75 lasers/month. I believe Q4, CYMI's earnings will shine. I expect them to ship about 200 lasers with revenue of about $95M. By Q4 CYMI
will be at full speed in production and CYMI's laser infrastructure crystalizing everywhere in fabs producing 0.25um.

5) CYMI's management is believable and reasonable. They don't project bullshit numbers beyond 2 quarters. The reason is that stepper makers don't tell them anything 6months out. Thus it is better to say they don't know rather to pull out wishful number.

6) Competition? Well it is a fact of life. They will always be there but whether they can make a dent in CYMI's lion market share is another story. As a matter of fact, the business model just doesn't look right without competition. Competition is good. It is what make CYMI better and smarter.

Conclusion:

CYMI will have very strong growth in the next 2 years as fabs are furiously migrating to .25um. There is no doubt that KrF 248nm is the premier choice for .25um processing. CYMI just cut the corner in their ramp phase and now are down the stretch. CYMI will have very good Q4 and Q1-98. At 15% sequental growth from quarter to quarter, CYMI will grow at 60% compounding annually. 60% growth translates to P/E=60. What do you say? A buy at $26+?

Maxwell
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