Someone mentioned this but I haven't seen whole article here yet, so here it is:
Pulled from the street.com
Herb on TheStreet: Is a Preannouncement in the Cards for Applied Materials?
By Herb Greenberg
Senior Columnist
7/9/98 8:43 AM ET
You can't help but wonder whether Applied Materials (AMAT:Nasdaq) is in denial over the state of its industry -- or whether it's got some phenomenal trick up its sleeve. A month ago this column suggested that bad news was in store for Applied and ASM Lithography (ASMLF:Nasdaq), of the Netherlands. Taiwan Semiconductor (TSM:NYSE ADS) is a big customer of both, and I had heard that it was said to be seeking to push out the delivery of equipment until the end of the year -- and then only after renegotiating prices. The very next day ASM preannounced a lousy quarter, citing a sharp slowdown in Taiwan. Since then, Lam (LRCX:Nasdaq), KLA-Tencor (KLAC:Nasdaq) and just about every other chip-equipment maker has either preannounced or announced layoffs and writeoffs.
The notable exception? You guessed it -- good ole AMAT. But the betting in some investment circles is that Applied, which hasn't ever preannounced during this down cycle, won't be able to remain mum for long. Next week the chip- equipment makers will meet in San Francisco for their annual Semicon West trade show. "It's inevitable that AMAT preannounces its July quarter," Morgan Stanley analyst Jay Deahna told my colleague, Eric Moskowitz.
Applied officials couldn't be reached, but if the company doesn't preannounce, the real shock could be what it finally does formally announce. One knowledgeable source said conditions have deteriorated so quickly in recent weeks that "they don't know what their numbers are." The few analysts who don't have buys on the stock have taken machetes to their earnings estimates. BT Alex. Brown's Byron Walker, for example, sliced his estimate on the July quarter to 17 cents per share from 23 cents, while reducing the entire year to $1.16 per share from $1.36. "Once believed to be a two-quarter problem, the downturn is now thought to be prolonged into the mid-1999 timeframe," he says.
On the foreign front, the company is being buffeted by the slump in Taiwan, which accounted for 29% of last quarter's sales. At home the news isn't much better from Intel (INTC:Nasdaq), which historically has accounted for 10% of the industry's worldwide orders. Walker says it's putting pressure on all of its vendors by canceling "a large number" of orders. In cases where it was contractually obligated to take delivery, "it has done so, but has not installed the equipment," he says. "This will slow down any recovery in equipment orders."
Walker says Intel is also putting pressure on the equipment companies to carry spare parts inventory that it normally bought outright. What's more, more than half Applied's biz comes from the construction of new fabs. "And you look at KLA," muses one observer. "They get 80% of their business from existing fabs, which is a good thing in a bad cycle -- and they're disappointing. What do you think will happen to guys like Applied that get most of their business from new fabs?"
Ever since the Asian crisis broke Applied has been trying to put a positive spin on the story, suggesting that the downturn was just temporary. While its stock has slipped, it's still well above where it was two years ago when quarterly earnings were higher and currently trades at a premium to its other large-cap peers. Just to get in sync would require a decline of another 20%, Walker says. So, why hasn't the company fessed up to reality? "This industry is populated by people who are fundamentally optimists,'' responds one analyst.
Based on its stock, the same could be said of its shareholders.
Optimism is an admired trait for investors as long as it doesn't cloud reality.
Short Positions
End of Article
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p.s.That Bob,M.D. guy seems pretty smart for a, uh, doctor and all ;-) |
