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Politics : Formerly About Applied Materials

AMAT 244.64

+0.9%

10:12 AM EST

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To: davesd who wrote (13728)	12/21/1997 6:17:00 PM
From: Steve Robinett	Read Replies (2) of 70976

Dave, There are admittedly problems with my oversimplified potato model. A real farmer does have his land; he can grow something else or even food he eats himself. A dram fab only has inedible fabricating equipment. If the fab owner tries to simply wait it out, he will never again become productive because a competitor will have newer, better, higher yield equipment. So his choice is to move from 200mm to 300mm and from .25mu to .18 mu or no longer be economically viable--ever. If he decides to stay in business, the biggest problem he faces is getting money for the new equipment in a credit crunch environment. That means dumping current inventory to raise cash, pushing back non-critical capital spending to raise cash (We've seen some of this already) and begging every bank on the planet for a loan. AMAT will benefit from this process. Right now, even adjusting for slightly lower sales next year, AMAT should produce about $2/shr in '98, which makes the stock's current value anywhere from $30-$40/shr. AMAT is at the low end of its valuation range. If I had to guess, I'd say this stock at least doubles in the next 3 years. At which point the current Asian problems will be way behind us and it will cost anyone with 200mm .35mu equipment more to make chips than they cost to buy retail. Best -Steve

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