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

To: Gottfried who wrote (12049)	10/13/2003 7:53:46 PM
From: Sam Citron	Read Replies (1) \| Respond to of 95406

Will ASML Wind Up in the Chips? {Barrons 10.13.03] by VITO J. RACANELLI LOTS OF FOLKS WONDER if semiconductor demand will rebound enough next year to justify the enormous rally in technology stocks this year. We might get an early clue Wednesday when ASML Holding reports its third-quarter earnings. The Dutch firm makes the high-tech lithography machines which other companies use to produce the semiconductor chips in our PCs and cell phones, among many other products. So the company's fortunes serve as something like a canary in a coal mine. To the extent things get worse or better in the chip industry, it'll happen first at ASML. ASML's stock price has done pretty nicely, too, in this year's rally from the March low. At one point, the Amsterdam-traded shares shot above €15, before recently settling back to €12.64. Nevertheless, they remain far above the €5.25 of a year ago. The American depositary receipts closed Friday at 14.88. Of course, the firm wouldn't comment about what its third quarter will show, or would it make specific forecasts about 2004, saying it's too difficult to predict. A company spokesman did point out that it's a volatile business, and that past history shows 30% jumps in revenue and unit sales for both the industry and ASML itself are not unusual. Fair enough, but the current consensus by analysts already assumes something on the order of a 50% jump in revenue next year and a 35% jump in unit sales, or about 210 machines from this year's expected 150-155. ASML shares trade in nosebleed territory at about 44 times the earnings-per-share consensus forecast of €0.29 in 2004. Meanwhile, the wide range around the mean goes from as low as €0.07 to as high as €0.62, indicating just how uncertain the predictions are. Market expectations imply a "massive" 2004 increase for ASML from a "huge" production increase by the chip makers, says Daniel Kerbach, a money manager at Activest Investment. If 2004 is going to be gangbusters -- which he thinks unlikely -- then on Wednesday when it reports its backlogs, ASML better show a significant rise from the 62-machine level reported at the end of the second quarter, he adds. Steven Werber, a portfolio manager at J.&W. Seligman, is equally skeptical, adding that the overly rosy outlook is "one of my biggest concerns" about the stock price. Some point to indications from foundries like Taiwan Semiconductor Manufacturing that they are near 100% utilization of their leading-edge chip-making machines. To make more chips, the bulls say, TSMC would have to buy new machines. And last week TSMC reported an impressive 27% rise in third-quarter revenue. TSMC and its chip-making rivals, however, don't reveal what the actual usable chip yield is, and it's probably just 35%-45%, Werber contends. (There is a learning curve for these machines, and a yield of 80% usable chips is considered good.) Werber figures some foundries could still double their chip yields without ordering new machines. If the situation is so tight, why aren't TSMC and other ASML customers raising their capital expenditures aggressively, he asks. "That's why I don't own ASML" shares, he says. And if ASML is about to ramp up production sharply, why did Carl Zeiss -- a German company that supplies the lens used by ASML in its machines -- just announce it's firing 220 people, asks Kerbach. Zeiss responds, "We are seeing a change in some of our markets which will be unable in the medium term to sustain the dynamic growth evident in the past." ASML is by no means Zeiss's only customer, but the slowing markets include the lens-lithography business, Zeiss later confirmed to Barron's. Maybe ASML will come up with some bang-up numbers Wednesday. The high share price suggests it must. online.wsj.com

To: Gottfried who wrote (12049)	10/14/2003 7:49:47 PM
From: Gottfried	Read Replies (1) \| Respond to of 95406

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