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Technology Stocks : Speedfam [SFAM] Lovers Unite !
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To: H James Morris who wrote (2715)2/7/1998 8:40:00 PM
From: Steve Patterson  Read Replies (3) of 3736
 
"So why isn't SFAM getting killed after the shortfall announcement?"

This bad news has already been anticipated in their fall from $60 to $25. If everyone thought they were going to make the First Call numbers going forward they would trade well above where they are now.

I am actually more scared by the possibility of AMAT taking market share from SFAM than by market conditions in general. CMP (as I understand it) is mandatory technology for more and more types of semiconductors, and unless you forecast a collapse in worldwide demand for DRAM and processors, whether they are made in Korea, Taiwan, Dresden, or Idaho makes little difference.

Let's also not forget that SFAM is not a pure play on CMP -- they have substantial exposure to the hard disk business. Here the problem is overcapacity, not a currency meltdown in the country of origin.

Simultaneous slowdowns in both core sectors of a business are very likely to impact its bottom line. However, please note that this downturn has caused only flat revenue quarter-to-quarter -- which is a measure of both SFAM's competitive strength and the continuing demand for cutting-edge semiconductor and storage technology. How many other semi equipment companies are even consistently profitable?

However, all this optimism is predicated on a resumption of growth sometime during 1998. As SFAM burns through their cash position, their book value will decrease, which means a continuing downhill slide unless profits can justify an earnings-based valuation again. I know which way I have bet, but there are reasonable counterarguments.

In times like this it is comforting to know that company management owns a large stake.

Long,

Steve
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