Cymer now has a PE of 27. For the last few months that number has seldom been
reached. Using PE as a guide, CYMI may be overvalued. (Especially with that dismal
earnings report as a backdrop.) If the market experiences a similar downturn as the
last, expect CYMI to sell off to its recent lows of six. That will still give it a
higher PE than the last time it hit six.
Fortunately the company was doing serious share buybacks during this quarter. I'm
curious what their average price was, as it might help in forming a bottom.
However, my gut feeling, despite yesterday's impressive demonstration in the face
of dismal news, is that the stock remains weak. Even in an up market, it might
even slide slowly down as investors feeling stuck in dead money take whatever
small profit or loss and head for a better return.
Unfortunately for CYMI the sector it totally depends on is in a devastating
depression: (From Lehman)
* The SEMI book-to-bill ratio for the 3 months ended in September for all
equipment in total was 0.57, representing the worst ratio since SEMI began
publishing data in 1991. Total orders were down 16.1% from August levels.
* Bookings have now declined 71% from peak levels in November 1997.
* Front end orders for September were down 23.6% sequentially, after a decline
of 24.2% in August. Test/Assembly orders for September were up a modest 3.9%,
after a decline of 10.4% in August.
* The three-month average order picture continues to reflect a very weak
summer period.
* We continue to believe orders will rebound seasonally in the fourth quarter.
Some equipment companies are projecting that orders reached a trough in 3Q98.
Fortunately help on the macro front is on the way. The Japanese have finally acted.
I think their banking reform act is a good one and will help to improve their
financial strength. However, how to stimulate demand remains a problem and until
that is solved Japan will remain stagnant. (What I think they should do is open up
their highly regulated market to foreign goods.)
Brazil's budget package appears OK to me, so it will get IMF money. No more new
financial meltdowns that could terrorize US markets and exacerbate macro
economic problems. (At least for a year, hopefully. Since Brazil always seems to be
on the verge of financial turmoil, I take my successes short term.)
Within the Semi industry, memory prices have risen 30% in some anecdotal cases.
Chip inventories have shrunk, as production lines have been cutback, plants shut
down, sold or divested.
Now I don't know whether to be heartened or saddened by the company's claim that
less than 25% of all wafer fabrication is by a DUV light source. My primary fear is
that if the small number of lasers sold was able to develop such a large share of
the market, then don't expect too much growth in the future. The good news is that
greater revenue from service and spares will kick in. Unfortunately in this case the good does not outweigh the bad and make up the 4Q shortfall in equipment sales.
A chilling thought just occurred to me. CYMI's early and rapid growth might just
have been due to a lucky coincidence of a semi-equipment bull market and a
technological leap. There's not too many more lasers to sell to reach 100% of all
chip fabrication. So in the future, where does CYMI's growth come from? Certainly
not from spares and service. Does Cymer need a new product for another industry?
rustam |
