*AV* WFR
First, the street expected a 22 cent loss which this beat.
Second, I foretold of this loss so it was news to no one.
Third, with DRAM debacle capacity last year, WFR had an inventory/capacity issue to deal with during those times.
****1. End users went from 45 to 30 to 15 on hand inventory towards end of 1996.
****2. Beginning of 1996, there was a shortage of silicon based on the requirements and future requirements(new construction) by 10-15%, which is significant.
****3. New construction slowed and DRAM glut caused the wafer shortage to disappear and get replace with a slight excess of wafers.
****4. During 1996 new startup plants to add capacity were being brought up and brought on line. This is a drain to R&D costs since equipment and start up costs are high for silicon plants.
****5. End of 1996 showed excess silicon capacity and underutilized new plants for WFR and others.
Fourth, the more expensive epi-wafers (~$60-$80) for advanced processing and larger wafers sizes(8") might have been impacted by the MeV implanters that were supposed to allow some heavy epi users to go back to the cheaper bulk silicon. This affected some sales as companies did not order as much epi and was originally thought and much work was done on MeV. MeV not a big threat now and the use of epi will grow dramatically in 1996.
Fifth, epi is more expensive and was being ramped in 1996 so a full year of epi profitability was never realized in 1996. 1997 will be somewhat of the first full year of epi availability and profitability.
Sixth, 1997 will see new process technologies that will drive the requirement and need for epi wafers as device feature sizes and technology advances.
Seventh, more an more companies are converting to larger diameter wafers (from 4" or 5" to 6"/8") which is more profitable for WFR. Those that do not do this conversion are seeing increases in the cost of wafers due to end of life issues. This drives profitability also.
Eighth, from the looks of the prices in the equipment sector, we are seeing expansion in the industry. Some of the new fab construction is coming out of mothballs but internal expansions whether in wafer diameter or in improved productivity, are allowing companies to increase the number of wafers processed through their IC facilities.
Ninth, SEMI has announced that a handful of companies will be testing out the 12" diameter wafer and processing capabilities in 1997 and 1998. This drive towards larger diameter wafers will come at a cost to the IC houses and will provide increased profits for the wafer producers (or at least start recouping the R&D costs associated with 12" wafer manufacturing).
Tenth, new generation of Microprocessors and DRAMs will have a positive impact on wafers sales by WFR. Industry is predicting a computer turnover in the busines sector this year such that PC sales may be up. If true, wafer consumption will go up in all areas.
Eleventh, the new wafer manufacturing facilities brought on line in 1996 will start paying back in profits as the market grows in 1997 and 1998.
Twelfth, silicon content (ICs) are growing dramatically outside of the PC business. Consider the silicon content in TVs, FPDs, cameras, cars, home electronics, etc. More and more silicon is being used, in the form of ICs, everywhere in our consumer lives.
What WFR provides is and always will be considered a commodity by me. It doesn't matter if it is used for a $500 microprocessor or a $1.50 game or relay, there will be a need for wafers to make all these types of devices.
The industry downturn of last year affected WFR finanical numbers. The two major mask suppliers, DPMI and PLAB are trading at respectable levels and even at historical highs. In order for them to be doing as well as they have, they neeed to be selling masks and reticles for new devices or replacement of tooling for older devices. Either way, wafers are required to be processed with these masks and reticles to produce IC devices.
When(NOT IF) WFR takes off, it will take off with a vengenance and the likes of under 30 will never be seen again. Financials may look terrible and may chase people away. I will ride out this minor blip (if it occurs) fully aware that WFR is perfectly positioned to kick butt big time when the industry finds itself back into a wafer shortage situation.
Historically wafer production has always lagged wafer requirements thereby creating availability issues and wafer allocations. At worst, we have more capacity than is required today due to the aggressive expansion to meet all the proposed new IC plants that were to be constructed. This construction temporarily was slipped out but is in the process of being revisited and restarted on its aggressive path.
The guys to watch are MU and MOT. As soon as we see the MU Lehi,UT or MOT VA. plants officially brought out of mothballs, you can be extremely confident that we are back into full swing of things. Today's confidence is being led by the AMD Dresden Germany and the INTC Texas plants under construction.
Sorry for the long winded response. But wondering why I should be so Bullish on WFR is like asking me why I might be Bullish on food. You need both to survive. Without food, you die of starvation. Without silicon, the microelectronic age is dead.
and boy o boy, is that ever my opinion!!!!!!! |
