You obviously know a lot more about Lam Research than I do. I appreciate your sharing your knowledge.
I invested in Novellus about five years ago based on what I thought was an interesting combination of aggressive product strategy and conservative financial practices. The company has what I call a "low fixed cost" business model. Compared to others in the industry like AMAT, product gross margins are lower, fixed costs are lower, variable costs higher (as a percentage of sales). The company buys a high portion of its product from outside, makes a low portion, employs many temps, has less operating leverage than others. I thought this ingredient was important in a cyclical industry.
It seems to be still in place. Mr. Hill commented on the company's "Outsourcing Model" recently. The last half of '98 saw them cut back on spending sufficiently to keep the break-even level below revenue. Of course, less operating leverage makes the upside less rewarding.
From your message, it sounds like Lam Research has moved in this direction.
However, since the Varian acquisition, Novellus is moving the other way: Debt has appeared, break-even has increased, fixed costs are higher, rents in San Jose are up, I own fewer shares.
I'll keep watching.
Regards,
Dave Chanoux |
