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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (3254)	9/25/2002 10:00:04 AM
From: Proud_Infidel	Respond to of 25522

Funding woes hit Asian chip firms' move to new tech Wednesday September 25, 1:59 am ET By Michael Kramer TAIPEI, Sept 25 (Reuters) - Asian microchip and display makers want to raise more than $10 billion from capital markets before the end of 2003 to fund next-generation plants, but investor scepticism could stall expansion at all but the biggest. The figure, compiled by Reuters from a straw poll of analysts, highlights a hurdle facing technology companies as their shares sink and the competitive threat to those unable to afford the cost of re-equipment. Only the companies with the largest cash piles will have the ability to shift to new, more cost-effective technologies for making semiconductors or flat-screen monitors, experts say. "The industry is going through a winner-takes-all game," David Wang, executive vice president of Applied Materials (NasdaqNM:AMAT - News), the dominant maker of equipment for manufacturing chips, told a recent panel discussion in Taiwan. The most extreme example of the scepticism towards financing Asian tech companies has been Singapore-based contract chipmaker Chartered Semiconductor (SES:CSMF.SI - News; NasdaqNM:CHRT - News). Its shares have more than halved since it announced a US$633 million rights issue to pay for new technology, which it needs to stay competitive with much larger rivals such as Taiwan Semiconductor Manufacturing Co (TSMC) (Taiwan:2330.TW - News; NYSE:TSM - News). The cash-rich Taiwan firm can afford to spend close to $2 billion on equipment this year without tapping financial markets. "Even for TSMC to try and raise money right now would be bad for its reputation," said SG Securities analyst Connor Liu. PRESSURE EATS INTO PLANS With the U.S. Nasdaq index, the benchmark for technology stocks, at a six-year low, some companies are cutting back their financing plans. Taiwan's Chi Mei Optoelectronics (Taiwan OTC:3009.TWO - News) the world's fifth largest maker of thin-film transistor liquid-crystal displays (TFT-LCDs), the most common type of flat screen, said last week it planned to raise US$830 million from bonds and overseas share issues. But it has already cut the size of the share issue by 17 percent and may be forced to discount its offers to attract investors, said analysts. Its shares have fallen more than 50 percent since its stock market debut on August 26. Last month, smaller rival Chunghwa Picture Tubes (Taiwan:2475.TW - News) was forced to slash pricing on a domestic rights issue by 26 percent. The rush to raise money despite the bleak market backdrop comes because semiconductors and TFT-LCDs face a generational shift in manufacturing technology. The new technology promises to reduce per-unit production costs over the long run and to bolster competitiveness. The semiconductor industry is moving to make microchips on 12-inch, or 300 mm, silicon wafers instead of eight-inch ones. Industry executives say the long-term efficiency of making 2.25 times more chips out of each wafer will outweigh the high initial outlays and cut production costs by around 25 percent. But the cost savings come with a forbidding downpayment -- a 12-inch plant costs US$3 billion. Similarly, TFT-LCD plants are moving to so-called 5G, or fifth-generation, plants that will make computer screens from larger, mattress-sized panes of glass. These will double the output of flat panels per pane, cut costs by 20 percent and allow the production of larger screens, at a cost per plant of US$1 billion. WINNING THE CAKE Taiwan flat-screen makers alone are planning on raising a total of $5 billion for plants to come on line before the end of 2003. "The companies that move ahead to 5G factories will sustain margins until the product becomes commoditised," said Kishore Suratkal, head of Deutsche Bank's Asian technology research team. "It's a race to win the cake and live with it for as long as possible." The largest firm in the sector, Samsung Electronics (KSE:05930.KS - News), has already taken a lead. The South Korean company completed a 5G plant last week and will start volume production later this month. TSMC and Taiwan's United Microelectronics Corp (Taiwan:2303.TW - News; NYSE:UMC - News) have built up a similar head start in Asia's contract chipmaking field. They already have 12-inch plants with trial production lines running, consolidating the lead they enjoy over Singapore's Chartered, the only other major Asian contract chipmaker. Makers of dynamic random access memory (DRAM) chips used in personal computers are in an even greater rush to build 12-inch plants, because their products are highly standardised and commoditised, forcing them to compete on cost alone. Samsung, one of the largest DRAM makers, as well as ProMOS Technologies Inc (Taiwan OTC:5387.TWO - News), a small Taiwan firm partly owned by Infineon Technologies AG (XETRA:IFXGn.DE - News), already have production lines running at their 12-inch plants. The end result is that a smaller number of companies are likely to take a larger slice of their industry's profits. Applied Materials' Wang said that in 1998, the top five most profitable chipmakers made 90 percent of the industry's earnings, compared with 70 percent in 1987. Even if capital markets were not hostile to technology companies, the cost of staying at the cutting edge is becoming more expensive. Wang said the cost of research to stay at the same level of technology as competitors rose 10-fold between 1993 and 2001 to $500 million. "This cost means not everyone will have money to do R&D, and not everyone will survive."

To: Kirk © who wrote (3254)	9/26/2002 12:56:19 AM
From: Mark Marcellus	Read Replies (2) \| Respond to of 25522

My question was "how do you value them?" or "What formula do you use"? And my answer was "ROIC", essentially return on book value + debt. FWIW, here's what I get for MSFT & AMAT: 2001 2000 1999 1998 1997 AMAT: 9.77% 32.65% 17.16% 6.31% 15.97% MSFT: 16.57% 26.99% 34.55% 32.77% 39.06% AMAT's ROIC numbers are exceptional for their sector, but they're never going to be able to consistently put up better ROIC numbers than a company like MSFT (or Coke). IMO, ROIC numbers over a number of years are the best indicator of a company's investment quality for a long term investor.