Hello Cary,
I am going to try and answer several questions here at once. Hope you don't mind.
For me, taking issue with guidance numbers is not hard to do. Remember earlier this year when the equipment companies were preannouncing bad news? Earnings were going to come in well below the guidance numbers given in the previous conference call. In early 1996 Applied was guiding Analysts toward numbers in the neighborhood of $4.00 for fiscal 1996 and, as you know, the results came in significantly lower. It is nice that they do that because it does give you some perspective but I would not base my outlook or my investments on information or guidance from conference calls. You and I came up with completely different interpretations of the recent AMAT conference call. I did not sense the bullishness or an urgent need to rush out and buy the shares. Shortly after the call, I sat in on the AMAT presentation and the breakout session at the Montgomery Technology Conference. They basically said the same thing and I came away with the same impression. After the conference I even felt more confident in my assessment of their business conditions. A few weeks ago, (before the Holiday shutdowns) one AMAT rep told me, "Orders are spotty, small and infrequent". He went on to say that they were working hard to position themselves for the next upturn and wanted to be ready to run again. He said he had no idea when or how soon it would occur but he wanted to be ready.
We work with several large device manufacturers and their plans have clearly changed over the past year. You interpreted my feelings correctly in a recent message. The semiconductor equipment business will be bouncing along the bottom for a while and the upturn is further out than many believe. It is not just Applied that is feeling this, most of the equipment companies are undergoing some pretty tough times. Now I would not rule out the possibility of another downleg. This falls in line with what I was saying about the recovery taking much longer to materialize than many expect.
From reading your postings I get the sense that you believe INFRASTRUCTURE is totally bearish on the industry. That is simply not the case. We like and own some of the stocks that provide tools to improve the productivity and efficiency of existing and new fabs (this has not changed much since we last spoke) and some of the more specialized entities. However, we are not fully invested and have no plans to be fully invested until we see some concrete evidence suggesting a change in capital expenditure programs.
As far as being wrong about the severity of the downturn, I am pretty sure the worst of the earnings reports are still ahead of us and no one is saying this upturn is a sure thing. If they are even remotely involved with the industry they are at best,hopeful. If you are willing to plunk your hard earned money down during a time when the device industry is overwhelmed with capacity (Intel is a major exception here) and wait for demand to catch up, you are more than welcome to do so. Unfortunately, I do not see business picking up until we make the major transition to larger wafer sizes.
Zeev has mentioned several times the problems with moving to 300mm. No doubt, this will take some time but the big manufacturers seem to be moving forward and wafers will be available when the toolset is ready. IMO, the Japanese equipment vendors are ahead in the development of 300mm tools - I have made this opinion very clear in our Daily Notes and in letters to our readers. Recently, I mentioned that AMAT was putting a serious effort into 300mm and it would not surprise us to see them catch up. This is encouraging news for AMAT but not encouraging enough to make me run out and buy the stock at the current quote. Again, this flies in the face of what many analysts believe but from what I gather from I300I and Selete, the large device manufacturers are going to move to 300mm and if they do, it will delay the recovery. This could easily create anxiety among holders of these stocks who are looking for a recovery in the second half of 1997.
There are companies who are still growing during this downturn and they will also grow during the next up cycle. I own a few and plan to purchase more when price weakness presents an opportunity to buy at reasonable valuations. INFRASTRUCTURE invests with a very long term horizon in our Monthly Model Portfolio. To say that we are short term stock pickers is ludicrous. I can honestly say that I have
only been tagged with that description by people that have never read our work for any extended period of time.
Someone said - Orson I believe - that we were wrong about Q3 and Q4 of 1996. Well, we may have been wrong about the stock prices (irrational exuberance runneth over -g-) but there are very few companies (KLIC is one) that will post higher results next quarter and total orders for semiconductor equipment are just barely higher. When I say just barely I mean just barely off the numbers we crashed to in just three short months! Denial? I would much rather write about the industry during a boom than the current period we are in. At least then we can talk about orders! -g-
Just so you all know, I do not use the memory business as my sole input for measuring the health of the equipment business. Those markets Wally mentioned are growing but the main driver for a new up cycle in the equipment business will be expansion by the biggest semiconductor companies in the world. Unfortunately, most of them have been announcing delays and cancellations more frequently than new capital expenditures.
Best Regards,
Carl
INFRASTRUCTURE
infras.com |
