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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (1844)	2/5/2002 7:35:54 AM
From: robert b furman	Read Replies (2) \| Respond to of 95703

Hi G, I think the analysis before September remains the same -Post September: Since the expansion was the largest in History back in 99/00.The equipment buildout was a once in the lifetime combination of Y2K and an unsustainable buildout of communication infrastructure.If there is any doubt of this look at the recent bankruptcies:global crossing - fiber,Mcleod -clex,Irridium/globalstar -satellite constellation,plus a list too long of ilex's -internet local exchanges - all of these companies jumped on the internet rage/digital revolution and built out there infrastructure based on equity and venture capital. Then and not to anyones surprise the banks came out of the ether and decided(once their debt exceeded TOTAL REVENUE)they might not get paid back.The loans stopped and ushered in a new concept - earnings must fuel future growth - well the recent bankruptcies are proving earnings can't pay interest let alone future growth. To those of us oldsters in the semi sector - that puts us back to a not all unfamiliar theme - we're busting and booming based on the pc cycle sort of.We also have a maturing cell phone market about to morph into expanded upgrades - this seems to be taking as long as the copper transition and the implementation of 300mm did (years). This leaves us with a wiser semi equip sector that saw the end of the party and shut down faster than past cycles.The time duration from the peak has already been longer than past cycles.Notice how your charts show a quicker decline - they've stretched out their enhanced technology backlog.Shipments are bouncing along historic low levels and taking it out over a longer bottom. Since the buildout was bigger -the trough got lower quicker and will be depressed longer.It is difficult to see how capacity expansion will add anything with production line rates being below 50% -it ain't gonna happen. That leaves us full circle to what we had prior to September - a maintenance production level of weak anemic backlogs - almost exclusively in the new technology manufacturing levels that we thought would be the second leg of the 99/00 blowoff.Thank god its coming at the bottom of the cycle rather than the top - it's the only game in town now(wonder what the bottom would've been like if it came at the top - UGLY HUH). Those fortunate enough to have backlogs are those companies that are so financially strong they can continue to invest in R&D in projects that incorporate new more efficient manufacturing techniques.These are big gambles that those with the money(Intel/Micron )will buy what they've said they would -if the equipment companies can create what their specs require.This R&D is not a done deal - manufacturing companies MUST take the idea and make it work.Then and only then do they have a new wave of products. Intel,Texas Instruments add 300 mm wafer lines - Taiwan semicondictor sees their line rates in the 70% on .13 micron only.Everybody has too much of old inefficient technology.This is bringing on the mergers and acquisitions - Micron and Hynix. This low level of equipment production will only change when the rest of the laggards HAVE TO REINVEST because the leader's products either outperform (faster clockspeeds like Intel vs AMD) or are so efficient (built cheaper) that price competition eliminates the weak and yields market share to the efficient mfrs (Micron buying Hynix - due to debt overload - they tried to keep up with Micron on price and lost more/faster till the banks/govt said get us out). So the only game in town is with the niche leaders.Secondary manufacturers stand a real risk of parrishing.Leaders rarely buy up more outdated capacity as they can get it for free buy just competing.Some competing companies can combine rather than fight it out i.e. KLA plus Tencor in 98,but those combo's are rare this time around (NVLS plus gastronics or BRKS plus PRIA). The good news is 300 mm is now producing at production rates - there are over 10 companies with pilots and 3-5 doing production. Copper interconnects are common - in 98 IBM was announcing they knew how to do it. So we have a technology evolution not a capacity expansion.Given time,the laggards must "pay to play" or they will be M and A candidates.Intel and Texas instruments announced reduced capex for 02 - they're leaders, AMD says they will do more expansion-its a laggard.The 20% is leading the other 80% has to follow-they are the future of this year. This is not reason to expect 99's highs to reoccur - but it's really the old opportunity's of past lessor cycles coming back. That's still pretty good!! I'd like to see the momo days stay away and allow our favorite stocks to advance by nice steady consolidations.The kind that allows wonderful capital gains - but might not be a thrill for the day traders. Oh yea - I'm gonna have to keep my day job and not retire tomorrow.That's ok it was just fine in 97/98 it'll be ok in 02 also. The surprise, if any to occur, is as Morgan says "when they come" - (the laggards that is) "they all come at once". As a little plus back in 98 we dreamed of PDA's,LAN's all of which are on sale today for less then $400.00 a piece at Dell.We also have satellites that send digital broadcast transmissions to mobile antennaes and Metro area networks hooking up to the many miles of YET unlit dark fiber.We have servers with 802.11 wireless at work,home or on your boat for less than 6000.00,wifi in your neighborhood or coffee shop for your lap tops that now cost less than a grand. In the big picture many more chips are being used every day everywhere - in time that creates consumption that soaks up capacity.Remember when computers below $1000 meant they were commodities that no one could make money on?(tell that do Dell) Reduced prices means more universal use.More universal use is what drives capacity utilization increases.We are alive and well in this regard - in fact it is more diverse than ever.This is as good as it has ever been in expecting a quicker than usual return to an increase in future shipments. Make no mistake, it shall require patience - I think much less now than most think.That is why prices have firmed.One should always be ready for a failed rally to retest Sept lows - if you doubt that can happen, check out the failed rally of early 98 and the nasty double bottom we got in Oct of 98.It was the best buying opportunity of a life time. It ain't over it's just getting a breather. Buy-em when they're low priced boys your gonna love em when they go higher. JMHO Sorry for my rant but your steady guidance deserves to be reinforced with common sense and a historical perspective -a perspective that your charts so eloquently point out. If only you could chart the emotions that have coincided with the price swings - I guess you'd need a bigger scale.gg Thanks again for the solid advice. Bob