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

To: Donald Wennerstrom who wrote (1939)	2/12/2002 11:28:02 PM
From: robert b furman	Respond to of 95965

Hi Don, Thank you for your kind words.You have a great thread here.The many diverse minds ,each with their own perspective on value and risk, has been a great forum for counterbalancing my opinions and dreams.It is a pleasure to"keep up". One time, as I was touring the Daymarc facility in Littleton Mass., the CFO told me they had just picked up a 16 million dollar order from Micron for dedicated sets.These are the result of die shrinks.From his perspective, the order has come from no where.It was totally unexpected. As new technology orders pick up from the competition trying to keep up,these unexpected orders ALSO DO HAPPEN. It is never anticipated, but they do occur.After a certain level of production these additional orders have margins that fall mostly to the bottom line.Especially when a company is running lean and mean. Over the years,past trough valuations (after a two for one split) have always bothered me.It is important to look at additional cash accumulations,acquisitions and the residual value of past R&D investments.This is at best a SWAG,but if the company has a track record of good innovation,the new sectors entered or increased market share obtained is of a higher reoccurring valuation. This is difficult to value - if you lived the industry - not to mention if you are an investor on the outside looking in.To work some very simplistic ratio and determine the value of a company from the past experience,and assume that R&D expenses of the past do not add to a companies value is a major oversight.This is especially true,when past trough values have historically ignorred this hidden asset in the past.I think it is safe to assume that within a specific stock it is safe to assume that past valuation will remain constant - afterall that stock most likely still retains its now even wealthier sponsors that it had the trough before except they're now much wealthier. To view the value of a stock based on the worst panicing investor from the previous cycle and to assume that an exact repeat will occur is truly betting on the last fools fearful response. When these great companies once again show how powerfully a little leverage can create wealth, the investing world will once again drive their multiples up to the 20's and 30's of peak earnings. This next cycle I suspect they won't be driven quite so high as the wonderful market we had from 98 to 00,but a 3-4 bagger from the trough is still a beautiful thing. Thanks again for making me feel" at home" here at your excellent thread. Bob

To: Donald Wennerstrom who wrote (1939)	2/13/2002 2:02:40 AM
From: Donald Wennerstrom	Read Replies (2) \| Respond to of 95965

The following is included as a reference article on the AMAT 1st quarter earnings released today. thestreet.com Applied Materials Looking Up From the Bottom By Tish Williams Senior Writer 02/12/2002 08:14 PM EST Updated from 6:58 p.m. EST Wall Street heard Tuesday that the worst was over for Applied Materials (AMAT:Nasdaq - news - commentary - research - analysis). Investors aren't nearly as concerned about the results the chip-equipment maker delivered after the market's close Tuesday for its first quarter of fiscal 2002 -- 2 cents a share in pro forma profit and $1 billion in revenue -- as they are about the future. After months of worry, investors wanted to hear that Applied's orders finally hit bottom, giving the market a chance to focus on recovery. As the leading supplier of equipment that makes semiconductors, Applied's performance is seen as an indicator for the chip industry and the prospects of its chip-equipment peers. Applied was pleased to oblige investors, slightly beating earnings estimates in putting an end to a year of punishing declines. Applied went one step further, reporting an order increase in the December quarter, albeit a slight one. Orders rose to $1.12 billion in the first quarter from fourth-quarter levels of $1.1 billion, lending credence to Wall Street opinions that Applied had finally hit its bottom and would begin to recover in the second quarter on stronger orders. CFO Joe Bronson attributed the gains to "a higher level of business activity, particularly in China." Management predicts that in the second quarter orders will continue their slow revival, growing 10% to 15% to a range of $1.23 billion to $1.28 billion. "It's nice to be seeing signs of stabilization and guidance to sequential growth in April," says Steven Pelayo of Morgan Stanley, who added that the 10% to 15% order growth forecast was expected, leading him to believe the stock wouldn't have a dramatic reaction in Wednesday trading. Morgan Stanley has done banking for Applied. A year ago, in the first quarter of 2001, Applied corralled $2.43 billion in orders in a quarter that ended on a bad note with a revenue and earnings warning. For comparison, orders in 2001 cascaded from $12.26 billion in fiscal 2000 to $6.1 billion in 2001. With 2002 under way, the fall has been halted. Applied Materials shares fell 2% in Tuesday trading to $44.71, but rose 1.1% in after-hours trading, according to Instinet. The chip-equipment giant finished the quarter with $1 billion in revenue and a 6-cents-a-share loss, as calculated by generally accepted accounting principles. Taking away $85 million in one-time charges, the company had pro forma profits of 2 cents a share, putting it ahead of Wall Street consensus expectations of a penny-a-share loss and coming close to consensus estimates of $1.01 billion in revenue. In the year-ago quarter, Applied took in $2.7 billion in revenue and earned 66 cents a share. Applied expects the second quarter's revenues to remain the same or improve a bit, which will enable it to stay profitable on a pro forma basis. Like many in the chip sector, Applied has been forced to ratchet back its operating expenses, and it improved that level from $479 million in the fourth quarter of 2001 to $401 million in the first quarter. As part of that effort, the equipment maker took $77 million of its write-downs in conjunction with a second 10% workforce reduction in as many quarters. Applied announced on Dec. 12 that it would slim its ranks by 1,700 employees, mimicking a move it released on Sept. 20 to eliminate 2,000 positions. The company took a $149 million charge in the fourth quarter to cover the cost of eliminating the positions, consolidating office space and restructuring. Chairman and CEO Jim Morgan described a weary chip-equipment market that is starting to see a few signs of health. Morgan pointed to stronger DRAM prices, lower chip inventories, a September bottoming of chip industry revenues and increasing capacity utilization rates in foundries as signals that the second half of 2002 will see a pickup. Still, while Bronson forecast improving chip demand, he said the company did not expect capital spending to rise in lockstep. He said that while manufacturing facility utilization is increasing, it is "still below levels that require capital investment." The company expects spending on semiconductor capital equipment to fall 25% in 2002 over 2001, with wafer fab outlays down 20%. Following intimations made by spending leader Intel (INTC:Nasdaq - news - commentary - research - analysis), Applied predicts that tight-fisted chip companies will channel their spending into the technologically advanced and more efficient 300mm equipment, estimating that customers will pay $10 billion for 300mm equipment in 2002 compared to the $6 billion purchased in 2001. Analysts were already charging ahead, pushing Applied to calculate how long it will take it take its gross margins from the 38.5% level it held in the first quarter to the 51% to 52% heights it achieved during the last chip up cycle. Applied's 38.5% margins are up from 37.1% in the fourth quarter, when they hit their lowest point of 2001.