Semi equipment sector headed up (again).........
electronicnews.com
Equipment Cycle Headed Up
RTP, CMP, copper hot spots; value-added shift changes landscape
By Carol Haber
New York--Semiconductor capital equipment spending is on the rise but may never reach
its previous heights and new value-added pressures will surface for equipment makers,
according to financial analysts who spoke as part of an economics panel at the recent
SEMInvest conference here. At the same time, you can forget about new "greenfield" fab
spending for a while.
Spending is expected to gradually increase toward the second half of this year, pick up
steam in 2000 and soar in 2001 with 300mm the name of the game. Hot spots should
include rapid thermal processing (RTP), chemical mechanical polishing (CMP), spin-on and
ECD copper deposition, deep UV (DUV) steppers, DUV photoresist track, DUV
photoresist and DUV photomasks. Leading-edge test equipment will be hot. The drive to
.18 micron and below will lead the way.
Veeco Instruments' CEO Ed Braun presided over the panel which consisted of Robert G.
Maire, vice president, Donaldson Lufkin & Jenrette; Michael O'Brien, vice president,
SoundView Technology Group; H. Elliott Rogers, Jr., managing director, C.S. First Boston;
Edward C. White, Jr., managing director, Lehman Brothers; David Wu, director, ABN
AMRO; and Vadim Zlotnikov, principal, Sanford C. Bernstein & Co.
Braun asked the panel to size up the state of the industry now and in the coming months.
"I don't see the 50 percent growth rates that we saw before, but 40 percent is a possibility
in 2001, and 30 percent is possible in 2000," said SoundView's O'Brien.
"We have made the turn," declared David Wu of ABN AMRO. "The best sign is that the
biggest company (Applied Materials) has had a 50 percent increase in new orders. The
year 2000 will be better and 2001 will be wonderful."
But Rogers of C.S. First Boston was "disconcerted" by the speed of the snapback, saying
"It happened a little faster than I had hoped and has created air pockets in DRAM pricing."
On the other hand, "Foundries are out of capacity, especially .25 micron. They'll be
scrambling."
Spending on new "greenfield" fabs will be scant in the near term, he noted.
Stock Valuations
Stocks may be ahead of themselves.
"We are certainly nowhere near peak earnings, not for another two years or so," said
DLJ's Maire. "There's a six-month operational lag with the recovery of the semiconductor
industry. Applying it this time around, with the semiconductor industry having started to
recover in the fall of 1998; equipment won't see a good return to profitability until the fall of
this year. Some companies are recovering earlier, like Applied. At the same time,
semiconductor and semiconductor equipment stocks trade hand in hand."
Previous rates of growth may not repeat themselves. "The last peak (this industry) saw
was in 1996 when there was an unusual confluence of events. It's not likely we'll get back
to that," Maire said. Rates of demand were at their highest ever. PCs were growing fast.
DRAM gross margins were high. The dollar was down. Korea was 30 percent of all
equipment purchases. "We went from the best of times to the worst." The industry "is
maybe 20-25 percent up in the recovery. But an important question is whether we ever get
to as high a peak. It may be difficult to get valuations up that high."
Equipment stocks are often ahead of fundamentals at the beginning of an up cycle,
according to White of Lehman Brothers. "We see this at the outside of each up cycle," he
said, adding that fundamentals have started to improve, with orders up 80 percent from the
trough but still down from the prior peak.
It's still early in the recovery of fundamentals and stock prices, he noted. "Bear in mind, in
a good recovery cycle, when you have the multi-year recovery, equipment stocks go up
substantially from trough to peak. The last cycle was very unusual. We had a new
geographic region getting into semiconductor production. You can't expect it from every
cycle. But recoveries are substantial in general, trough to peak. Doubling and doubling
(again) sounds like a lot, but it isn't a lot for semiconductor production equipment. You have
very high operating profit leverage at the beginning of the cycle."
Consolidations, Restructurings
Surviving the storm of the last few years hasn't been easy.
Said Rogers of C.S. First Boston. "There isn't one company in the industry that didn't have
a major round of restructuring. One had four. The '98 industry overall lost money. You
have to go back to '86 before you see that amount of bloodletting. It was only in the fourth
quarter that momentum started to build. It was probably a healthy shakeout, with the big
getting bigger and the weak weaker. Companies that continued to invest will emerge
stronger; those that had to cut R&D will find themselves further behind." |
