Hi Zeev,
I am doing a "cut and paste" from some emails I sent out to some readers today and yesterday. While it takes a somewhat positive view on WFR, it is not meant to be a "supportive" stance. I am just publishing it here for purposes of discussion and to draw out more conversation and opinions on this subject.
The numbers can be deceiving.
The Top Institutional Holders WFR is Wisconsin (State Of) Investment Board with 5,640,300 shares.
Top 10 Institutional Holders of WFR account for 10,968,028 Shares
Top 10 Mutual Fund Holders of WFR account for 1,909,004 Shares
This would mean the top 20 non insiders own approximately 12.88 Million shares as of the beginning of July. We would guess that of the 79% Insider and 5%+ Owners, the 79% ownership represents the 70% owned by the German Company VEBA, and that the State of Wisconsin, by virtue of their 5.6 million shares (8% of the shares) would also be in that category.
Therefore, there is some overlap in the number of shares in the hands of the "big boys". According to what happened when VEBA made an offer to acquire more of the company a few years ago, they wanted to raise their stake to 70%. So if we look at VEBA and the State of Wisconsin as the only two Insiders and/or 5%+ owners, it appears that 21% of the shares outstanding are in the hands of the institutions, funds, and individuals like us. So, with 7.3 million shares in the hands of the institutions and funds (12.9 - 5.6), we would assume that represents 10.5% of the outstanding shares.
But this is just the top 20 institutions and funds, and we know there are roughly 120 institutions and funds owning the stock, with them having less than 225,000 shares if they are institutions and less than 85,000 shares if they are funds. We guess the fall off is very dramatic from the top 10 in both groups, and will make a guess that the remaining 100 combined holders represent 20% of the of the 21% owned by this group, or 4%.
The numbers now read as follows: 79% insiders and 5%+ owners, 14.5% non overlapping institutions and funds, and 6.5% ownership by "others," like us. That would mean 4.5 million shares are in our hands. This is a rough guess since the shares that traded last week could have been an institutional or fund dumping stock and individuals such as us picking it up.
Competitors: Wacker (German) and maybe a half dozen Japanese companies. The real key to this (addressing the larger question of the viability of this company) is that WFR is the last US based Wafer manufacturer of any importance. All the rest, with a few very minor exceptions, are non-US companies. This makes MEMC an important and strategic asset for US based semiconductor suppliers. Our belief is that the US government will have to step in at some point since they are not particularly pleased that 70% of the company is owned by the Germans to begin with. Furthermore, the VEBA-VIAG merger had no place for WFR and they are looking to dump the company since it does not fit in their new corporate structure.
At current levels, someone is likely to belly up to the bar and want to buy WFR. The market cap of WFR is now insignificant to the large VEBA-VIAG conglomerate, and it is unlikely they will allow it to go under, but rather off load it to someone else with a clean slate and write off the loss. Of course this is our opinion.
Finally, as far as market share is concerned, who uses which wafer supplier has always been a secret by the end users. Right now there is a glut of wafers since the fabs are being under utilized. The closing of certain WAFER producing facilities, the lack of expansion within the WAFER industry, the number of people that have already qualified WFR WAFERS for 300mm, and the time and expense of requalifying a new supplier of WAFERs (yes, a change like this would make it necessary for the IC manufacturers to re-qualify a new WAFER vendor if they were exclusively using WFR products) would make shutting down WFR unlikely. But if it does look like this is what will happen, a US producer of ICs might very well step in and buy the company at these levels to assure themselves of having a decent supply of WAFERs when the industry does its rapid ramp again.
A WAFER shortage could very easily occur if we get a knee-jerk recovery. We have seen this in the past. To drive WFR out of business and then fall prey to the Japanese WAFER suppliers would almost guarantee a debacle when any WAFER shortages occur. But again, WAFERs may very well be determined to be a strategic resource, much like the Tinsley Labs issue that held up the acquisition of SVGI by ASML. This might be stretching the point, but WFR did fall to $3 a few years ago and did get resurrected from the grave then.
Once before WFR ran into the same cash flow problem and VEBA bailed them out. The real question is whether there will be a decent enough ramp in the industry before year end, to bring WFR back into a less negative situation and allow them to ride out the storm until the recovery. Also, WFR will be negotiating new prices for WAFERs in October that will take effect in January.
Clearly, the Japanese want to "own" 100% of the Wafer market and are trying to drive WFR out of business, having little interest to competing with the Europeans in Europe (Wacker). Trying to dominate the US and Pacific Rim is something they have tried numerous times, successfully, in other industries.
Of course this is a huge gamble, but the entry move on Friday and the price rise on Monday has helped to minimize losses of prior positions, and has returned a 50% profit from some of Friday's entry levels. So the gambit is paying off and we are in a killer position if we are correct in our assessment.
For every buyer there is supposedly a seller, and vice versa. What if an institutions finally had enough, or the State of Wisconsin was forced to sell some shares due to some regulation in their investment stratregy? And what if VEBA or another institution was gobbling up the shares? Lot's of what ifs and not enough visibility. The real question is what IC manufacturers will do if the industry does a rapid recovery and the years of not adding substrate capacity, idling some of the capaqcity, and shutting down older lines, results in a wafer shortage? Do you really expect INTC, with a $250 retail price on a 1.8 GHz processor and possibly 300 good devices per 300mm wafer is going to allow itself to cut back on production for a $150-$200 wafer that would produce $75,000 of revenue? Even though this is an extreme example, since Processors have oneof the highest revenues per wafer, the cost of a wafer is mininal to the revenues that are generated per wafer. From glut to shortage is just a knee-jerk recovery away.
We are seeing the same thing in the reticle industry. Both PLAB and DPMI are not exactly in hog heaven, but from years of experience, once the industry ramps and capacity becomes an issue at these companies, the price ofr reticles seems to increase dramatically, enough to "pay back" for all of the abuses during its lean times. I would love to say this is a "cosndierate industry," but it is not. It is cutthroat and memories are long. you abuse a customer in their time of need, and it comes back to haunt you in spades when the tables are reversed.
The entire thesis above assumes we will see a wafer shortage. As we see sub 200mm capacity going off line at both the wafer procducer and IC producer level, we are looking at 200mm and 300mm keeping the industry alive. WFR has 300mm waiting to ramp up, and is poised (like the others), to supply the industry with its needs. To count out WFR would be a travesty when 400mm starts to be discussed in a few years. It could be a disaster for the US based manufacturers of ICs as the Pacific Rim, with its foundries, drives the industry and puts a world of hurt on the US companies in the cost effectiveness arena.
While the elimination of Wafers in the US is not as signifcant as becoming a second rate producer of DRAM, electronics, cars, steel, and other industries that have been snatched for our shores, the loss of a domestic supply of wafers could have a similar effect in the IC industry.
Yeah, we may be dangling from a thin thread here, but we would really like to hear other opinions such that we can "fine tune" our atittude towards WFR. We are not trying to convince anyone of anything, but want to put a view on the table, to see what the responses might be.
Thanks
andrew |
