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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (30527)	1/21/2000 6:19:00 PM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

<<Once again, the semiconductor industry proves it is on fire. The Semiconductor Equipment and Material International (SEMI) organization announced that for December 1999, the Book-to-Bill ratio was 1.18, up from 1.10 in November, and total bookings came in at $1.83 billion. The ratio measures orders and shipments for North American semiconductor equipment companies. The Book-to-Bill ratio is a ratio of the three-month average for bookings, or future orders, to the three-month average for billings, or orders shipped. Not surprisingly, semiconductor equipment companies have seen very strong revenue and earnings growth for the past quarter. Five of the top equipment providers have exceeded earnings expectations for the most recent quarter. Company Ticker Earnings estimate Reported earnings Applied Materials AMAT $0.65 $0.77 KLA Tencor KLAC $0.48 $0.52 Teradyne TER $0.39 $0.42 Novellus NVLS $0.26 $0.27 Lam Research LRCX $0.72 $0.98 Source: Company reports Again, there are three key technology drivers generating demand for more sophisticated equipment: Migration from aluminum interconnects to copper Decreasing transistor line widths Increase in wafer size from 200 mm to 300 mm We reiterate our belief that these companies should continue to perform well through the first half of 2000. However, as the equipment companies continue to soar, it becomes very important that we focus on the industry drivers and the implications for the equipment companies. The two basic components that ultimately determine semiconductor pricing are supply and demand. Demand begins with the end user of semiconductor products. The end users utilize chips in a variety of applications, from automobiles to personal computers. When end users decrease consumption, the providers of semiconductors begin to see slower ordering for its products. They in turn decrease orders from the chip manufacturers. As they decrease their orders, the chip manufacturers reduce their capital expenditure budgets and decrease the number of machines they order from the equipment providers. This is the booking number used in the Book-to-Bill ratio. The other component, supply, is also important. When demand is high, a lack of supply prevents chip manufacturers from providing enough products for their customers. As a result, they must increase their ability to produce. This leads to higher bookings for the equipment companies. However, supply issues arise only after demand exists. If demand is flat or declining, there will be too much supply. Prices will plummet and revenues will drop. The key for investors to remember is that demand drives this industry. Currently, with demand strong, equipment orders have been very good. Intel (INTC : Nasdaq) announced it will spend about $5 billion on capital expenditures in 2000 while Taiwan Semiconductor (TSM : NYSE) expects to spend about $4.5 billion. With such high budgets for 2000, the equipment companies should expect to see strength through most of 2000. However, the rate of growth may begin to slow later in the year as equipment companies increase shipments and bookings level off. We will continue to monitor demand levels and let you know as demand begins to slow. >>