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

To: Chien Li who wrote (40462)	12/5/2000 6:14:03 AM
From: Wes	Read Replies (2) \| Respond to of 70976

AMAT value and bottom: Hi all, I believe that it's way too premature to call a bottom on the semi-equip sector, as I believe the full downside has not been factored in completely. Several days ago, a threader expressed the view that the market in general is pricing in a slowdown in economic growth and earnings but had NOT completely factored in a recession. I agree with this view point: the current downturn in stocks has been brought on by the realization that economic growth is not going to be as spectacular as we thought before and that it will in fact slow significantly from the past couple of years. While fears of recession are definitely contributing to the sell-offs, I do NOT think investors and traders have fully accepted the recession prospect completely. There's still a lot of denial and hopeful/wishful thinking that we will be limited to a modest slowdown, a soft landing. If a recession is in the cards, stocks in general have a ways to go on the downside. Now, regarding semi-equipment sector: I would tend to believe that even if the economy in general wasn't slowing, we still would have seen a modest slowdown (or at least perceived slowdown) in semi-equipment orders, if only because the expectations and projections in early 2000 were so high and really got out of hand. With the economy slowing, I believe that it is almost certain that we'll see significant order contraction beginning in early 2001. If a recession hits, then orders will really fall of a cliff. As we all know, this is a highly, highly volatile industry. After a severe slump brough on by the 97/98 emerging markets crisis, chip makers rushed to add capacity in 99/00, and by the early part of 2000, supply constraints and the belief in strong market growth through 2002 was guiding the capital investment plans of chipmakers. Now that the economy is at least slowing and demand is clearly not what was anticipated, there will be serious revisions in captial investment budgets in the coming months. And those revisions will be downward by a lot with many push-outs. Remember, the semi-equip industry scales with the first derivative of the semi-market. Just to illustrate this, try a simplified, idealized thought experiment: if chip orders were to just remain flat (no growth, no decline), then chipmakers in theory would not have to increase capacity, in which case, equipment orders go to ZERO. Of course, this is an over-simplification, but it should give one a proper sense of how equipment orders scale with chip sales. This is why the equipment sector is especially volatile and has always been accorded valuations (ie. PE ratios) lower than other tech stocks. So I think the logic that a "soft landing" slowdown in the overall economy will be associated with only a modest slowing of growth in semi-equip is unrealistic, wishful thinking and does not account for how this industry scales with the semiconductor industry overall and the rest of the economy. This wishful thinking is why the stock has remained at around 40, which means we haven't bottomed yet. With this in mind, I tend to agree with other threaders here who predict a bottom of $20-25/share. We'll probably see this durin the first half of 2001, when "the other shoe will fall." That is, we get confirmation from companies themselves of the downturn in orders. This would give us a trough-to-trough of 2x, which is in line with historical precedents. So keep some powder dry, because the long-term future of this sector is still very bright, even if the next year or so will be tough!! ;)