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Technology Stocks : Speedfam [SFAM] Lovers Unite ! -- Ignore unavailable to you. Want to Upgrade?

To: Matt Quigley who wrote (3427)	6/26/1999 11:06:00 AM
From: Sidney Street	Read Replies (1) \| Respond to of 3736

This should get the stock moving: Scott Black's comments in Barron's Roundtable. Black's a bedrock value investor but he understands technology, unlike many value types who shy from it. He recommended Teradyne at a very good point a year or so ago, e.g. Also, VSEA and HELX are worth a peek for anyone interested in the small cap plays on Semi Cap Equip. A: Three turnarounds. I'll start with the smallest company, which is SpeedFam-IPEC. Q: Sounds like a new way to make babies.A: It's the new name of two companies that merged in April. Both are in the business of making chemical-mechanical-planarization, or CMP, systems. These are used in making semiconductors, basically for polishing finished chips. SpeedFam, with 25% of the CMP market, is No. 2 to Applied Materials, which has 40%. The entire market for this equipment is about $500 million a year. I asked SpeedFam what's proprietary about their equipment. They said, first, it comes with an integrated cleaning system, which Applied's doesn't. Second, SpeedFam claims to have higher throughputspeed. Now let me give you a negative. Applied Materials offers one-stop shopping in the front-end manufacturing process. SpeedFam doesn't. It sells one element of an assembly line, but it is teamed up with Lam Research, which makes wafer-etching equipment, and Novellus Systems, a leader in vapor depositions. Together, this trio can provide an entire unit. Q: How are SpeedFam's finances? A: The stock's around 15 1/2, with 28.9 million shares outstanding after the merger, a $450 million market cap. There's zero debt on the balance sheet and cash of $145 million, or $5.02 a share. Stockholders' equity is $353.3 million, which works out to book value of $12.22 a share. On a trailing-four-quarter basis, combined sales are running $242 million, $119 million for SpeedFam and $123 million for IPEC. They'll report a loss for the year ended May 31 after a special charge of about $50 million. It's a big-bath routine, a noncash write-down. In fiscal 2000, which just started, revenues could be close to $300 million, and earnings will depend on operating profit margins. Their goal is to get back to 14%-15% margins. I don't think that's doable this year. Let's say 5%-10%, or 50-80 cents a share. The following year, if they reach their targets, we're looking at earning power of $1.50 a share. If they do it, the stock goes to 30. Q: That's a good snapshot. A: Two more things. First, they have a who's-who customer base. They sell to the top 25 makers of semiconductors in the world, like Intel, IBM and Hewlett-Packard. It's not in Intel's or anybody else's best interests to have only one big supplier in an industry. It's better to have two healthy players. Second, SpeedFam has another business, a small one that's dwindling. It makes equipment for thin-film disc drives. By next year it will account for only 10% of revenues. So this company is turning into a pure play in CMP. That's good.