Catch-22 for Cymer
Investors worry firm's edge may cut both
ways
By Bruce V. Bigelow
STAFF WRITER
November 4, 1997
For hundreds of high-tech executives, the four-day financial conference
that began yesterday in San Diego offers an opportunity to explain their
business strategies to Wall Street.
But to Robert P. Akins, the event sponsored by the American
Electronics Association represents a chance to accomplish much more.
It gives Akins a much-needed platform to try to calm panicky investors
who've hit the emergency exits at Cymer Inc., the specialized laser maker
founded in San Diego 11 years ago.
After touching a record high of $48.75 per share on Aug. 22, Cymer
stock plummeted to a scary Halloween low of $22.875 on Oct. 31. The
sell-off in September and October shaved more than $600 million from
Cymer's market valuation.
Yesterday, Cymer shares closed at $23.75, up 87.5 cents in moderate
Nasdaq trading.
So what happened?
As securities analysts gathered in room 275 at the Sheraton Harbor
Island hotel, Akins insisted that "from a fundamental standpoint, there's
been no change" in Cymer's operations.
"The basic message is that the company is shipping orders and making
money," the chief executive said. "And we see an accelerating rate of
delivery."
It was a message that Akins repeated in sessions throughout the day.
Last night, Cymer even invited analysts and others attending the
conference to its newest manufacturing plant in Rancho Bernardo for a
firsthand inspection of the company's factory.
Yet the advanced technology that made Wall Street so exuberant about
Cymer following its initial public offering in September 1996 was the
same thing that investors found frightening in September 1997.
The company practically has a chokehold on a key laser technology,
which is widely viewed as absolutely critical to the semiconductor
industry. Despite two longtime competitors, Cymer currently dominates
the market for deep ultraviolet lasers, the key component needed by the
semiconductor industry to make the next generation of computer chips.
Cymer's specialized lasers enable chip makers, such as Motorola and
NEC, to etch much finer details onto silicon wafers so that more
microcircuitry can be squeezed onto each integrated circuit.
The lasers are incorporated into machines known as wafer steppers or
scanners, which use a process known as photolithography to imprint
circuit patterns on silicon chips. The process is similar to the way light is
projected through film to develop a photograph, except the circuit traces
are about as thick as a human hair.
There are only five companies in the world that make wafer steppers and
scanners -- and they are all Cymer customers.
If you look at it one way, Cymer is the proverbial toll bridge that every
chip maker must use to stay in business. But if you look at it another way,
such complex technology could also become the single biggest road
block for the entire semiconductor and computer industries.
The disparity between the two views may explain how Cymer could go
so high -- and then fall so far.
Cymer's stock price began tumbling after the company said an unnamed
customer, believed to be Nikon Corp. of Japan, had delayed some of its
orders for Cymer's exotic lasers.
The plunge accelerated a few weeks later, after Montgomery Securities
analyst Brett Hodess suggested that both Nikon and Canon Inc. were
having technical problems integrating the deep ultraviolet lasers into the
next generation of steppers.
"I think the market overreacted," said Charles DiLisio, president of
D-Side Advisors, a San Jose firm that offers investment advice. DiLisio
said that the semiconductor industry will inevitably move smaller features
on each integrated circuit and Cymer's technology "is the way to go."
On the other hand, possessing such crucial technology seems to make
Cymer particularly vulnerable to short-sellers and rumors.
Cliff Kalista of the Pennsylvania Merchant Group voiced concern that
one of Cymer's arch rivals was on the verge of introducing a competitive
ultraviolet laser that would cost 40 percent less.
Yesterday, Akins reminded analysts that Cymer has signed strict
confidentiality agreements with its customers that preclude him from
discussing difficulties that customers might have encountered.
Yet he reminded analysts that such technology is extremely complicated
and tricky to implement.
"The fact that that there are issues shouldn't be a surprise to anybody,"
Akins said. "This is what happens when you introduce new technology."
He also noted that Cymer's customers shipped more steppers using the
new lasers in the third quarter of this year than in the first and second
quarters combined. |
