A different perspective from Motley Fool Lunch time news.
FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Book-to-Bill Climbs
Semiconductor capital equipment companies took off this morning after Semiconductor Equipment and Materials International (www.semi.com) announced its November book-to-bill ratio of 0.84 for the industry.
"Technology buys are certainly going ahead as planned in the semiconductor industry," according to Stanley Myers, president of SEMI. Contrast this with "capacity buys." The difference between the two is that a technology buy is smaller purchase of equipment with next-generation technologies while a capacity buy comes from the semiconductor fabs (manufacturing facilities) increasing their supply capacity. The November book-to-bill of 0.84 is up from October's 0.75 level, but bookings were still down 51% year-over-year compared with November 1997.
The market is reacting on cue, as things are falling in place across the semiconductor world. BancBoston Robertson Stephens yesterday set a three-year price target of $200 per share on DRAM producer Micron
Technology (NYSE:MU - news) , which lays a red carpet into today. If a respected analytical team such as Robbie Stephens is forecasting the cash flow needed to get to a quadruple in the shares of Micron in three years, then the future must hold the promise of capacity buys for the DRAM business. What's interesting in this scenario, though, is the trader-driven and name-driven buying here. Applied Materials (Nasdaq:AMAT - news) , the class of the front-end equipment business, is up $3 11/16 to $44 13/16. But something like Electroglas (Nasdaq:EGLS - news) , one of the leading companies in chip-testing equipment, is down $1 1/8 to $11 15/16 because it is having a worse-than-expected quarter this quarter. Golly, what a surprise.
Come on.
If there is seriously a ramp in capacity that should be discounted here, something like Electroglas should be feeling it first. When you add capacity, you add back-end equipment first. Sure, Teradyne (NYSE:TER -news) is moving, but that's because it's liquid and it's got some good things going in other parts of the company -- specifically its backplane fabrication unit. Why aren't Cerprobe (NYSE:CPRB) , Cohu (Nasdaq:COHU - news) , and Credence Systems (Nasdaq:CMOS - news) moving? Alright, so maybe the market's inefficient. But when you see the correlation between market cap and today's moves in the names that traders and fund managers recognize, you have to wonder if the trading is correctly discounting the
fundamentals. What's the most-recognized name out there? Applied. It's doing the best today. What's the most expensive company in the group? Applied.
Yeah, Applied Materials is a great company, but this smacks of herd instinct, and I think some of the smart lead steers have already turned. We could be seeing the back end of the herd still going one way, not knowing that the leading market players have already stopped their buying of these names and are probablyfeeding some stock into this move. That's just my speculation. Just because the book-to-bill happens to be trending up from a highly depressed level doesn't mitigate the fact that orders and shipments across the
industry are down 51% and 41%, respectively, from this time last year.
Note: Since I think there are a lot of traders in these stocks, I'm sure to get a lot of opinionated notes. Just
remember that the subtitle of this column is "An Investment Opinion." Like certain parts of the human
anatomy, everyone's got an opinion. |
