Semi-Equips - Buy when BLOOD is running in the streets! Message Board

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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!

LRCX 143.23

-2.9%

Nov 18 3:59 PM EST

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To: Math Junkie who wrote (7357)	11/24/1998 11:19:00 PM
From: Q.	Read Replies (2) of 10921

re. AMAT as a proxy for the SOX, Richard, I should have said that the market thinks that AMAT and its DOMESTIC customers are the same thing. re. <Which would be reasonable enough if the customers' capital spending were always a fixed percentage of their sales. That's obviously not true, but the market acts that way.>> you ask: <So what else would you expect investors to use to evaluate AMAT's near-term future?> well, AMAT is an exact proxy for the SOX. Smaller semi-equip stocks are not. Why not ask the same question about them? Besides, why should AMAT's stock price show perfect correlation with the stocks of its domestic customers, when foreign sales have been so much higher in peak years, and when Asian sales are doing something vastly different from domestic sales? Moreover, why is the same thing not true in other cyclical capital-intensive industries? Schlumberger is to the oil industry what Applied is to the semiconductor makers. They are the big vendors for their customers' capital investments. Make a comparative chart of SLB and the oil majors, and you will find they are uncorrelated. What is going on here is in fact not sensible market behavior. But it is happening none the less. The reason is just not obvious. My speculation as to the cause is this: AMAT's market cap has grown so big that it must be owned by a zillion funds, yet the managers of these funds haven't a clue what the business does. This business is too incomprehensible for them. They don't know anything about HPD-CVD and whether Applied is taking business from Novellus, or whether there is over-capacity in Taiwanese foundries. Ask them what the difference is between a technology buy and a capacity buy and they will shrug their shoulders. To these masses of fund managers, AMAT is just a semiconductor stock. A big one. One that they include with the other big semiconductor stocks they toss around when they play their sector allocation game, deciding to go from x% to y% semiconductors. AMAT just gets driven by fund liquidity in the asset allocation game. This doesn't happen with such perfect correlation for the capital-investment vendors in other cyclical industries, or for the smaller semi equips. It is peculiar to AMAT.

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