FSII - The Worst is Over? Message Board

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Technology Stocks : FSII - The Worst is Over?

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To: Joe Dancy who wrote (1761)	2/10/1998 3:40:00 PM
From: Running Bull	Read Replies (1) of 2754

Joe - I like your reasons for liking FSI from an investment world perspective. My concerns for the company come from a technical bent. They have three businesses: Microlithography, Cleaning and Chemical Distribution. My concerns for each of the three are as follows. Microlithography - The polaris product is a great idea, but it is a natural extension and complimentary product for a stepper company to sell. What is to prevent any of the stepper guys from developing a knockoff to this, bundling it with the stepper and taking FSI out of the game? The cost to do this would be pocket change to the big stepper players. Cleaning - This division is shrinking when their competitors are growing. Steag, CFM, Semitool and the Japanese are cleaning up (sorry for the pun). All the above grew in the last year. FSI shrunk. And their investments in the future haven't yielded anything dynamite. They have bet on paradigm shifts which haven't occurred while ignoring the biggest and most prevalent methods of cleaning. Chemical Distribution - This market is small and FSI has done an outstanding job of capturing a huge market share (about 40%). But the market is only $200 million and as it has grown, it has started to attract the attention of the chemical manufacturers. Submicron's competing business was sold to a chemical company and other international chemical suppliers already bundle their chemicals with the distribution system and have been known to give the distribution system away in exchange for long term contracts to supply the chemicals - kind of like selling the razor blades but giving away the razor. They have spent huge sums on facilities which burden the operation with depreciation or lease costs and have pushed the break even levels near $300 million in revenue. So at $250 M, they will lose money. So strategically they haven't positioned their product portfolio to win big. I am an investor in the company, and I like it for all the reasons you have stated, but if they haven't captured share and I am concerned that they haven't changed enough to change that trend. This company would be best split up into three separate companies or sold off in pieces. It would be a great leveraged buyout.

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