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

To: Cary Salsberg who wrote (45972)	4/27/2001 9:27:04 PM
From: mitch-c	Respond to of 70976

Finally, I am concerned with the anecdotal complacency evident on this thread. Most people were very bullish at the top and WRONG and most are very bullish now. I plead guilty to the first and second counts, but not guilty to the third, your honor. <g> I think the backlog burn rate is more dangerous now than before precisely because it is so sharp. It implies far more orders are being pushed and canceled now than before. I don't think we'll even see 1-to-1 substitution of 300mm capacity for 200mm, or that the revenue stream will support it. (300mm gives (1.5)(1.5), or 2.25 more surface area for chips, so I'll assume roughly 2 to 1 capacity improvement - neglecting line shrinks, which may drive the ratio as high as 3 to 1.) Effectively, one 300mm pizza oven replaces the equivalent of three 200mm ones - once all the bugs are squashed. Keep that in mind - 300mm/200mm capacity replacement* means 1/3 the unit volume of semi equipment. Backlog protects the semi-equip companies; they can smooth a lumpy revenue stream by using backlog as a buffer. They can keep their facilities and people efficiently employed, even though new business isn't coming in - temporarily. What happens as backlog drops to or reaches zero? The company can choose to a) gear down soon, with the layoffs and idling we already see happening; b) totally idle their business, eating the overhead losses; c) continue to build equipment on spec, ramping inventory and praying for customers, risking a CSCO-like writedown. I don't think any of those options are attractive for them, but the first is least painful. (I coast to red lights from a long distance; with a clear lane, I can maintain a higher minimum - and average - speed than if I race up and stop.) So, the first effect of a return of orders (increasing BTB) will be to ... rebuild the backlog cushion. Only after the increase appears sustainable will we see the ramp-ups of the past, with multiple shifts going 24x7. Remember that 3 to 1 ratio? It means going into such a ramp, a WFE company may be selling half to a third of its prior product volume (machine count) ... and the climate will probably not support a 3x price multiple per machine. SO, the bookings end of the BTB may be slower to ramp this time, not faster (or even as fast) as the decline. In short, I think that differentiating technology and capacity adds may be difficult, since a 300mm technology add WILL ALSO BE a capacity add. The only circumstances I can see better than my "expected" case here are 1) overwhelming chip demand (therefore capacity) growth; or 2) compelling economies of scale driving 200mm into the scrap heap before the machinery breaks down (capacity replacement). I don't see either as likely. Instead, I expect the current low-key, below-capacity WFE business to continue in survival mode, with the respective stock prices hovering close to or below where they are now. Thus, I have focused on trading the mood swings this spring, rather than expecting a flubber bounce. Disclaimer - I have been, and probably will remain biased to the optimistic. However, I also want to keep rooted in reality. Color me a weak ST bear, strong LT bull through the summer quarter. I will be very surprised if we break through the low already set ... but I think we'll get close enough to scare folks at least once more. - Mitch