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

To: Donald Wennerstrom who wrote (31448)	7/13/2006 1:00:34 PM
From: Donald Wennerstrom	Read Replies (1) \| Respond to of 95646

The State of Tech: Semiconductor Manufacturing and Test Equipment Thursday July 13, 12:01 pm ET By Paul McWilliams, NextInning.com The following are excerpts from Next Inning's 2006 June State of Tech Report. In its entirety, the report is 100 pages chock full of charts, tables, and actionable investment commentary on where technology stocks presently are and where they are headed. Here are some brief thoughts on a few of the semiconductor fabrication and test equipment companies from our June State of Tech Report. Full analysis on these companies and many more tech companies is available to Next Inning subscribers. # We've maintained a very cautious posture in the semiconductor fabrication equipment sector by keeping our suggested entry prices low for the stocks we follow. However, there was one stock in the sector we liked at the beginning of 2005, Lam Research (Nasdaq: LRCX - News), which we named early in the year as the only equipment stock we saw trading at a good value. As luck would have it, Lam Research was the top performer in our proxy during 2005... # As I've stated in the past, I view Applied Materials (Nasdaq: AMAT - News) as an excellent proxy for the fab equipment sector and a very well-managed company. Since my long-term outlook for fab equipment is a bit more bullish than what it appears Wall Street is thinking, I believe Applied Materials will perform well during the coming years... # As is the case for all of the tech stocks that have fallen appreciably from recent highs due to investigations into stock-option pricing practices, I have a very tough time in calculating a reasonable valuation. No matter how well these companies are doing, as we learn details about particular investigations, it will likely weigh heavily on the company's stock price. This is one of those "wildcard" risks that investors hate, and it's why KLA-Tencor (Nasdaq: KLAC - News) is trading at what I think is otherwise a very good value. The good news, though, for KLA-Tencor is the fact that the company has a very strong balance sheet sporting $16.67 in net tangible asset value per share. Due to this, even the most successful civil litigation that could cripple some weaker companies would most likely only nick KLA-Tencor. With this considered, I think investors who don't mind risking exposure to potential litigation should consider KLA-Tencor in the low-$40s as a potential value investment... # I continue to view both Novellus Systems (Nasdaq: NVLS - News) and Teradyne (NYSE: TER - News) as having measurably higher risks and higher potential rewards when compared to the other three stocks in our proxy. However, this current risk/potential reward profile is where the similarities stop. Novellus makes its money from selling advanced fabrication equipment and Teradyne is focused on selling test equipment mostly to the package and test sector. Since Novellus really makes its money off leading-edge processing equipment, its business cycles tend to be pretty volatile and fairly well synchronized with Applied Materials. However, with the interest focused today at leading-fabrication nodes, I continue to think business for Novellus is going to be better than the consensus of the covering analysts. Teradyne manufactures semiconductor test equipment that is sold to package and test houses. All of the other proxy members sell their equipment to fabricators. After quarters of lambasting Teradyne for its poor performance, we flipped to a more bullish opinion when the company shed some business units we saw as non-strategic and underwent some restructuring...