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

To: Gottfried who wrote (14827)	5/7/2005 11:56:58 PM
From: Sarmad Y. Hermiz	Read Replies (1) \| Respond to of 25522

>> Carl J. also stresses [on his web site] the importance of used and refurbished equipment resales - not covered under SEMI's reporting. Gottfried, I understand that. However I wonder whether re-selling a piece of equip actually adds to the stock of equipment that is productive, or merely changes its location, without adding anything to total capacity ? Now the refurb aspect is important, especially if the cost of refurb is in terms of salaries paid by the fab to private individuals (therefor it doesn't show up as revenue to tool makers). But also there one would expect that fabs have always retained a staff of technicians and service people. In any case, my point is that AMAT et-al have not adjusted aggregate tool production capacity to the level where they can demand high margins - and get them. The next question is why not ? is it because AMAT is really hoping to get to $20B annual revenue, and thereby make up for low margins with high volume ? Or is the problem competition from other tool makers, such that AMAT cannot demand more than 7% net margin. (this number is from memory, and it might be wrong). That 7%, by the way, is half what commodity drive makers get. We ought to ask "what is AMAT's problem?" Not in the rhetorical sense, but in the real sense. Why does AMAT not charge 10% more for its equipment ? Why not 20% more ? Is the answer because then its sales will be lower, because fabs would have higher costs, forcing higher chip prices, resulting in lower chip end-user sales, resulting in lower tool sales ? Or is the answer because a competitor (to AMAT) would sell an equivalent tool for less, thereby reducing AMAT's sales (of that tool) to zero, as what happens with commodities ? Then the next question is "why doesn't AMAT exit he markets in which it has competition, and stay in the market where it has a monopoly, duopoly or oligopoly" ? And if the answer to that question is that AMAT has no product in which it has so much pricing power, then we know that AMAT's stock will never recover until total industry capacity is reduced through consolidation. I think we can all agree that there has been very little consolidation in the semi-tool industry since the bubble. And that's why the stocks are where they are at. Sarmad