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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (10091)	1/25/2002 11:39:24 AM
From: Robert Douglas	Respond to of 10921

Hi everyone, It’s nice to see some discussion taking place. I agree with Katherine that this industry is sometimes misunderstood. I don’t have a technical background in semiconductor manufacturing, instead my background is in finance/investing/economics. I believe that the notion the semiconductor equipment industry is a bad one for investing is misplaced. I hear lots of complaints that the severity of the cycle makes it unsuitable for long-term investment. Such is the nature of most capital goods makers and the semi-equips have a particularly volatile cycle to deal with. The semi/equips are selling capital goods into an industry that’s making many capital goods – a double whammy. But that’s ignoring the virtues of the industry. Compare, for example, a company that makes drilling equipment. Now the pace of technological change in the drilling industry is slow. Many rigs that were made in the early 80’s are still functioning quite well today. The advances have been there, to be sure, but they aren’t orders of magnitude better. Most old rigs can be used effectively in some application. If the number of rigs gets overbuilt, it could take years, if not decades, before the supply comes into balance with demand. Something we have lived through. The semi/equip business is vastly different. Here, technology advances at a rapid pace and equipment that was state of the art just 2 or 3 years ago is already inefficient and in some cases obsolete. If the industry gets overbuilt, it doesn’t take a decade to come into balance. How many semiconductor producers are operating fabs that have gone unchanged for 10 years? But that’s not the whole of it. Suppose 2 competitors in the same sector of the semiconductor market take different routes. One decides to cut back on capital spending and the other doesn’t. It’s not long before the second has greater productivity and cost efficiency. As prices fall, the more productive firm takes share and is more profitable. The static company has no profits to buy new equipment while the other has the profits to keep expanding. In other words, there is a huge incentive to spend on capital equipment in an industry with rapid technological change. As long as technology keeps advancing, this industry will continue to be a good one, in my opinion. When the pace of advancement grinds to a halt, then it will be time to worry.