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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: brunn who wrote (39985)	11/26/2000 4:49:36 AM
From: Jacob Snyder	Read Replies (1) \| Respond to of 70976

you said: "most cyclical companies--e.g.automotive companies--lose money during down years. P/E therefore becomes meaningless and P/S and P/B are the only remaining metrics. AMAT however (knock on wood) has not lost money over the last 10 years" As I recall, during the last downturn, the semi industry decided they didn't need all the 300 mm tools that AMAT had spent a pile of money developing. "Sorry, we'll eventually want them, just wait a year or two". So AMAT wrote off that development effort, at the bottom of the 1998 downturn. The quarter they did that, the headlines said AMAT was profitable. But this was only because they called the writeoff a "one-time, extraordinary event", and excluded it. That was creative accounting. Downsizing, and writing off a product development effort, after management guessed wrong about future demand, is something that happens every downturn in this industry, because it is so hard to predict the future. I am not criticizing AMAT management. They do as good a job as can be done. But I am criticizing all the twisted, mutilated, mangled numbers that end up in EPS, PE, and PEG calculations. I would agree that AMAT has gained market share in its industry, and the semi-equip industry is going to get a bigger slice of total chip sales, and so margins are permanently shifted up, so the P/S range going forward will probably get shifted upward. Before 1998, the P/S range was 1-4. Now, I think it will probably be higher. How much higher? I don't know. 2-8 is a reasonable guess. I wouldn't count on seeing the valuations we saw earlier this year, more than once a lifetime.