Jeffrey,
>>lower R&D dollars and falling further behind
>>is very astute. However, that would tend to apply to a
>>small tech company trying to be a "full-service bank"
>>so to speak, as opposed to selecting a niche where the
>>resources it has are enough to keep it competitive.
>> VTSS is a great example of a second-tier
>> company that has done very well in its niche.
First of all, I would regard VTSS as the first-tier
company in its subfield. What I mean is that depending on
your technical knowledge you can subdivide large fields into
subfields and find subfield leaders. E.g. INTC is a semi
field leader. VTSS is GaAs subfield leader, ALTR is
FPGA subfield leader.
The problem with subfields is that they have to be viable for
growth and "secure" from larger predators. E.g. assuming that
LTXX is a leader in discrete component semi-test sector, is this
sector going to grow, and is there assurance that TER will
not enter that subsector?
For example, WJ has a great product line that is a
standard in the industry. However, the products don't need to
be replaced that often and there is not much growth in that
niche. (WJ info per Andrew Vance). On the other hand, all
surrounding territory is taken by AMAT, NVLS, LRCX, so
WJ faces an uphill battle to expand into new products. This
is a "niche squeeze" that shows investors a profitable company
with high margins, but with potential of bottomless R&D
expenses if the company decides to grow. And notice that AMAT,
NVLS and LRCX even don't plan to wage an all out war on WJ.
In addition, WJ has a good management - they are just
in a difficult position. Is management of LTXX good enough
to find their way into a "golden niche"? The past results
are not persuasive.
In summary, I buy subfield leaders when I know
that subfield is secure and growing. I also look at the
management expertise and vision. I don't consider LTXX
such a case and I don't plan to spend time to change my
opinion. I don't claim that I am right, and it's possible that
new LTXX products will push them to splendor. It's
also possible that the valuation is so low that the stock will
go up without much fundamental change. Do your own
homework.
I'll ask one question though: why not KLIC?
Jurgis |
