**off-Topic**
Brian, IPEC will double from current prices during the next recovery starting in 12 months. This is an NCAA layup. However, put 50% of your IPEC capital in SFAM and catch 66% of the industry. AMAT will own the other 30% as CMP is now extremely competitive. The following post is an outline of the competitive CMP landscape.
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To: Christopher Adams (364 )
From: Jay M. Harris Tuesday, Sep 30 1997 8:18PM EST
Reply # of 546
To Chris ; CMP techno-heads; ET AL:
This board is probably aware I have been one of the more outspoken bulls on IPEC and the related growth of the CMP market. During the last 2 years I rode IPEC down to $10 and watched the recent 260% bounce off the bottom with the industry recovery. All the while I have been bullish on this company's technology and strategic importance to the growth of the CMP industry.
However, recent competitive events in this industry have obscured my radar screen to the point where I'm beginning to be more conservative in how I attempt to exploit the CMP market opportunity.
I will enumerate the following points:
1) Applied Materials stated at the Monty Conference this month that they would take a 25% share of the CMP market during Calendar 1998. I have heard from the SFAM quarterly EPS call that Applied's tool is getting better after having a rough start. I have followed AMAT for years and while they Hype their tools with the best of equipment company, they also deliver the goods to wall street. Bottom line is that there are wall street analyst building revenue targets into AMAT's model based on this expectation. I'm a portfolio manager by trade and I have a higher degree of respect for AMAT's capabilities than any equipment company in the world. This risk did not exist when I started following the CMP industry and now has become very real.
2) SpeedFam- Over the past two years this company has developed process technology that has truely amased me. In my mind their ability to execute in this industry with internal R&D has been extraordinary. They have developed a world class DRY IN DRY OUT tool with in process endpoint detection that has truely taken me by surprise.
I am extremely impressed with the Auriga-C in that the footprint did not increase. In fact, one could make a compelling intellectual argument that SFAM has better in-house developers than IPEC from the standpoint of IPEC having to aquire externally to fulfill their technology roadmap. It appears clear to me that IPEC's 12 inch tool is the same technology as the 776 with the same throughput on a modestly larger platform. I have also heard on the SFAM thread that SFAM will be a contender for the Intel Oxide bake-off with a 12 inch oxide process.
I have not formally confirmed this. However, it would make a hell of a lot of sense for INTC to take this approach. This is a risk that did not exist 2 years ago during my initial analysis of this industry when SFAM was virtually a non-event. What a difference 2 years makes for the lowly technology investor.
3) IPEC - To be totally honest, I feel the industry downturn impacted IPEC more than the average equipment company because of IPEC's propensity to aquire strategic technology. While they were busy integrating the pieces of their technology roadmap, poor fundamentals in the indusrty cought this company by surprise and profitability suffered disproportionately further distracting senior management. I do believe this allowed AMAT and SFAM to close the technology gap that IPEC once enjoyed. More importantly, this increased the legnth of time for the adoption of CMP as the SEMI industry hunkered down and postponed investment in equipment limiting IPEC's continued share penetration while AMAT & SFAM were developing aggresively.
It is ironic how the dynamics of a young industry play out. Having said this, the technology advantage IPEC once enjoyed is closing in my opinion, while the market opportunity window for the competition seems to be growing longer. Chris just stated that INTC is pushing the oxide decision out to early 1998. This certainly can't be construed favorably from IPEC's perspective as the encumbant vendor. Andy Groves best seller states "only the paraniod survive" and he clearly practices what he preaches when trying to supply INTC. These risks were not on my radar screen when I began following this industry and have culminated in obscuring my discipline.
Conclusion, I feel the recent run-up in the stocks (SFAM & IPEC) is not reflecting the risks outlined above. This industry in my opinion will be much more competitive than the average CMP geek on the web, or wall street analyst for that matter is modeling. I took profits today in IPEC and will take a more cautious approach to committing capital in the future. The stocks are over 4 times revenue. These are hardware companies in which leadership is very difficult to determine. A billion by the year 2000 split 3 ways is not that big of a deal! SFAM & IPEC are already on track to run 200 million in revenue in the comming year with AMAT around the corner. I apologize for flip flopping on this market. This is not my style as I am normally a buy and hold investor and I hate to pay capital gains. Todays decision was extremely difficult and costly from a tax point of view. My best advice to this board is to use IPEC & SFAM in proportions consistant with your comfort level. My mistake was being too heavily invested in IPEC while the above changes evolved. I will continue to follow this industry closely, and will commit capital on the next pullback.
You guys can also catch my posts on the Dialogic thread under communications. This company has a comparable growth rate with much less competitive pressure...
Hope this post helps..
For the first time, I am no longer long IPEC but will be back!!
Happy Investing,
Jay |
