Someone on the UTEK board just posted the note that they were on the list - FSII, UTEK, PLAB, and MASK are my plays in this sector, just thought I'd see if any others were on the Smart Money list Greg.
In searching for the article I ran across this FWIW:
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Copyright 1998 Star Tribune
Star Tribune (Minneapolis, MN)
May 25, 1998, Metro Edition
FSI International of Chaska battles trouble on 2 fronts;
Firm hurt by cyclical semiconductor industry and Asia's woes
BYLINE: Dick Youngblood; Staff Writer
FSI International Inc., a manufacturer of high-precision equipment used in the production of integrated circuits, is my nominee for poster child of the erratic semiconductor industry.
Consider: After losing $ 8 million in the industry's last cyclical downtown in the early 1990s, the Chaska company exploited the ensuing recovery to more than quadruple its sales and nearly septuple its earnings in the four years up to the Aug. 31 end of fiscal 1996.
We're talking some sizable numbers here: Fiscal 1996 earnings topped $ 28.5 million, or $ 1.23 a share, on sales of $ 304 million.
It was a halcyon period for the semiconductor industry that understandably inspired FSI in 1995 to commit more than $ 95 million to the addition of production capacity and laboratory facilities needed to meet what its customers were assuring would be an ongoing blizzard of orders.
FSI makes equipment to clean and decontaminate microchips during manufacturing and markets a system that controls the flow of chemicals used in semiconductor production. The company also sells a photolithography system that applies photosensitive material to a chip as part of the process of imprinting a pattern on a circuit.
Alas, by the time FSI's expansion was completed early in 1997, the industry was six months into another cyclical downturn, the result of significant production overcapacity worldwide.
Despite his hold rating on FSI's stock, however, securities analyst Edmund C. White Jr. of Lehman Brothers in New York City does not fault FSI for making the investment. Calling FSI "a fine company with some good long-term prospects," White said the expanded capacity was necessary to meet concerns of prospective customers about the company's ability to supply high-volume production.
At first, FSI's management figured the timing of the expansion might turn out to be just right, said Joel Elftman, 58, the company's founder and CEO.
"Industry analysts were projecting the downturn would last maybe six months, which meant we'd be in an ideal position [with the new facilities] to exploit the recovery ahead," Elftman said.
The Asian factor
But forecasts about the start of a recovery kept getting pushed out from one month to the next. Then the Asian economy tumbled into the quagmire just as FSI's fiscal 1997 was ending last August, a development that delayed a major order from one Korean customer and killed the prospects for a sizable order from another.
It was a variation on a a global theme: According to reports from industry groups and individual producers, plans for some $ 30 billion in semiconductor manufacturing capacity were canceled or postponed worldwide from the beginning of 1997 through the middle of March 1998. Nearly half of those decisions came from Asian producers.
The result has been one of the longest downturns in the industry's history. Given FSI's reliance on construction of new microchip-production capacity, the impact on its business has not been pleasant to behold: Earnings in fiscal 1997 tumbled a dizzying 84 percent from the year-earlier record, landing at $ 4.6 million or 20 cents a share on a 17 percent decline in sales, to $ 252 million.
If the projections of stock analysts are correct, fiscal 1998's results will be even more unsightly.
With forecasters projecting no upturn in the industry before the end of 1998, at best, securities analysts expect FSI to lose about $ 5.5 million, or 24 cents a share, this year. The analysts project fiscal 1998 revenues of little more than $ 240 million, another 4 percent decline from a year earlier.
You will not be shocked to learn that Wall Street did not exactly greet all this news with huzzahs. FSI's stock, which had traded as high as $ 37.75 a share late in 1995, hit a 17-month low of $ 10.75 early in April. The stock (symbol:FSII) closed Friday at $ 11.50, down 6 cents.
A substantial buildup of semiconductor production capacity in the 1993-95 period, particularly in Asia, was not the only reason for the industry downturn, Elftman said. An important factor also was the relentless miniaturization of the microchip, which often expands a manufacturer's capacity, he said.
Whatever the reason, the result has been a dramatic falloff in microchip prices: Since the beginning of 1997, for example, the price of high-end memory chips has plummeted 84 percent, to about $ 12. At the lower end, prices have declined about 73 percent, to about $ 2.30.
Glimmer of light
Nevertheless, both securities analysts and FSI management see a glimmer of light ahead.
White, the Lehman Brothers analyst, said he expects an upturn in FSI orders late in calendar 1998, initially from manufacturers seeking to upgrade their technology and later as new production capacity comes on stream.
Over the longer term, Elftman is encouraged by industry projections that PC production will grow at about a 17 percent annual rate over the next five years and wireless networks will grow at a 25 percent clip. Meanwhile, new uses for embedded, application-specific chips (found in everything from autos to medical devices to cameras) are being found every day, he said.
The upshot: While projections of securities analysts vary widely for fiscal 1999, the consensus is that there will be a strong turnaround in FSI's fortunes next year. According to recent estimates for FY99, analysts expect the company to earn between $ 5 million and $ 9.5 million, or 20 to 40 cents a share, on sales of $ 260 million to $ 290 million.
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If nothing else, this just confirms that long term we will do well here IMO.
Joe |
