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Technology Stocks : PRI Automation (PRIA) -- Ignore unavailable to you. Want to Upgrade?

To: Barry who wrote (723)	6/24/1999 9:53:00 AM
From: Tom Smith	Read Replies (1) \| Respond to of 1214

Comments from Lehman Brothers re: PRI and Intel. ======================================================================== Headline: PRI Automation: Shares Down on Intel 300mm Speculation; BUY Author: Edward C. White, Jr., CFA (212)526-4744 Rating: 1 Company: PRIA Country: COM CUS Industry: SEMICO Ticker : PRIA Rank(Old): 1-Buy Rank(New): 1-Buy Price : $30 5/8 52wk Range: $44-9.56 Price Target (Old): $67 Today's Date : 06/17/99 Price Target (New): $67 Fiscal Year : SEP ------------------------------------------------------------------------------ EPS 1998 1999 2000 2001 QTR. Actual Old New Old New Old New 1st: 0.33J -0.34J -0.34J 0.08E 0.08E - -E - -E 2nd: 0.17J -0.24A -0.24A 0.20E 0.20E - -E - -E 3rd: -0.20J -0.15E -0.15E 0.27E 0.27E - -E - -E 4th: -0.24J -0.07E -0.07E 0.40E 0.40E - -E - -E ------------------------------------------------------------------------------ Year:$ 0.06J $ -0.80E $ -0.80E $ 0.95E $ 0.95E $ - -E $ - -E Street Est.: $ -0.76E $ -0.79 $ 0.69E $ 0.71 $ - -E $ - -E ------------------------------------------------------------------------------ Price (As of 6/16): $30 5/8 Revenue (1999): 135.0 Mil. Return On Equity (99): -15.0 % Proj. 5yr EPS Grth: 30.0 % Shares Outstanding: 21.5 Mil. Dividend Yield: Nil Mkt Capitalization: 658.44 Mil. P/E 1999; 2000 : N/M; 32.2 X Current Book Value: $5.02 /sh Convertible: - -Debt- to-Capital: 0% Disclosure(s): C ------------------------------------------------------------------------------ * Yesterday PRI's shares fell 11% after a brokerage firm report speculated that PRI's hardware may not be used in the pilot line version of Intel's new 300mm plant. PRI is a key supplier of Intel's 200mm automation equipment. * Some press reports interpreted the brokerage firm analysis to mean that PRI would not be a participant in Intel's new 300mm plant at all. Given the breadth of PRI's automation offerings, we think this is an unlikely scenario. * At this stage, speculation about Intel's product procurement plans or strategy for its 300mm facility is speculation only -- Intel has said that no specific equipment decisions have been made yet. * PRI is the market leader in automation solutions, and it has the broadest and most highly integrated product line. We think this will give it a distinct advantage in "cost of wafer transport" at the 300mm level. * We would use the current weakness as a buying opportunity in PRI's shares. The 300mm opportunity is longer-term, but meanwhile the company faces an improving short-term climate, based on strong 200mm activity. Buy! The speculation on Intel's 300mm procurement strategy. Traditionally, Intel used single source vendors for many types of equipment that it purchased, and it adopted the "copy exactly" strategy, of replicating the same (often single sourced) tool set across each of its plants. In recent months Intel has indicated to its vendors that in the future, as a way of improving upon equipment cost-effectiveness, it will use multiple sources of equipment, and will not necessarily adhere to the copy exactly strategy. While this was the first time the multiple vendor strategy has been articulated officially, we are aware of very important instances in recent years where Intel has already gone to multiple vendors. As a result of the publicized statements, there has been speculation that those equipment companies which are sole suppliers to Intel would lose business. The type of concern we are now hearing about PRI (regarding its Intel business) is not at all new, and it is not unique to PRI. What is important to note is the motivation behind Intel's quest for multiple vendors -- it appears to be to increase its technology options, and to get better cost-effectiveness. Intel has never indicated that it will drop its key equipment suppliers just to be able to add multiple sources. In fact, we understand the opposite to be true, that in many cases there will still be a predominant equipment supplier, if the technology and cost considerations appear to justify it. There will be more to 300mm than Intel. Now that Intel and TSMC have announced 300mm plans, there is speculation that at least six more companies will soon announce 300mm activity. We think PRI will have strong opportunity with at least four of those. How this relates to PRI. The speculation argues that, in order to keep PRI's competitors alive in the U.S. market, Intel might award them the interbay and intrabay business on its 300mm pilot line, leaving PRI out of the picture. Of course, no one (including PRI) can refute this as a possible scenario. But in that case we could certainly argue that the automation products Intel currently sources from other vendors (such as SMIF machine interfaces from Asyst, MES software from Applied Materials - Consilium, and simulation software from its internal development group) might be purchased from PRI. And no one knows how the pilot line 300mm decision at Intel will determine the volume production decision (although it is our understanding that the winner at the pilot line level is likely to get much of the production business). In the end, we think it is fruitless to spend too much time speculating on how Intel's capital procurement decisions will unfold. Because the decisions are likely to depend on cost economics, and because these vary from one chip company to the next, the outcome is not always easily predictable. What all of this does suggest is that equipment companies will have to fight a tough competitive battle if they want to win the bulk of Intel's business. No equipment company can assume that it is a shoe-in for the business. But this is already well known and accepted within the equipment industry. PRI's Advantages. PRI's strategy is to make sure that it is as well positioned as possible for the broad 300mm opportunity, when it occurs, while not ignoring the meaningful 200mm business that is available today. In our view, the company has several advantages in the automation market. 1. Market leadership. While good data is not generally available, the company believes that it is the largest supplier of Interbay and Intrabay automation equipment, with a larger revenue base (in this market) than either Daifuku, Murata machinery or Shinko. 2. Product breadth. PRI Automation is the only company that we are aware of that offers a full spectrum of wafer transport equipment and related software. This includes interbay automation (overhead monorail tracks in the central corridors in chip plants), intrabay automation (stockers, and floor mounted robots to carry wafers to process tools), machine interfaces (to carry wafers from the intrabay automation robot to the interior of a wafer processing system), tool automation (to carry wafers from the machine interfaces into process chambers within each tool), scheduling software (to optimize wafer flow in real time), and MES software (to organize manufacturing execution in a chip plant). PRI is one of the few companies that can integrate all of these aspects of automation to produce a highly efficient material management/wafer transport solution.