Semi-Equips - Buy when BLOOD is running in the streets! Message Board

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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!

LRCX 153.34

-5.0%

Nov 13 3:59 PM EST

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To: LLCF who wrote (4311)	1/5/1998 10:06:00 PM
From: Jay M. Harris	Read Replies (2) of 10921

Since my prior post was on equipment spending as a percent of revenue at Intel, I'll include global industry numbers to demosnstrate the over-capacity problem. Remember, that the rule of thumb for a healthy semi industry (good margins & pricing) is to hold equipment spending to 21% of semi revenue globally. These numbers are from from Credit Suisse First Boston. The ratio of capital spending on equipment to semi sales in 1996 was approximately 33%, an all time high. This ratio is currently estimated to be 27% of industry revenues in 1997. First Boston is estimating a decline to 24% for 1998 which would derive a 2% increase in semi equipment cap ex for calendar 1998 based on current macro semi revenue estimates. This is where I differ from the analysts. The world according to Jay follows. I'm sticking to the 21% rule. The Dataquest Fab survey in July 1997 called for 27 new Fabs planned for cal 1998. This is up from the 57 fabs planned for a 1997 start. Dataquest is also modeling 30 new Fabs in 1999. The new Dataquest survey will be out any day. I'm expecting major downward revisions around the world as semi cash flows simply aren't keeping pace with funding requirements especially for .25 micron tools. A good DUV stepper cost $7 million in US greenbacks, and CMP polishers ain't cheap at $2.7 million for a dry in dry out process. Finally, check the wafer suppliers shipments to the chip OEMs. Wafer shipments are currently 10% off the mid 1996 peak with capacity reductions around the corner. Inventory is beginning to build at all tier 1 chip OEMs. These are all tell tail signs of impending equip push outs.

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