Barron's Article: Tech wreck overdone; fab equip to grow 21% in 1998
Tech Investors Are Acting Irrationally, But a Few Guys Do Have Their Heads on Straight
(Excerpts---PD)
By ERIC J. SAVITZ
Irrational exuberance? More like just plain irrational. Indeed, technology investors last week
seemed in dire need of a dose of lithium. The cratering of Asian stock and currency markets left
people with urgent questions about the impact of the crisis on the computer and semiconductor
industries, in particular. And, as you certainly know by now, Mr. Market had trouble finding
definitive answers, swinging from panic selling on Monday to panic buying on Tuesday, before
settling into ordinary, workaday confusion...
...Technology investors continue to grapple with two key issues: the impact of the Asian debacle,
and the fallout from strong demand for personal computers selling for less than $1,000. On the
Asian situation, the stock market focused first on the dangers to the semiconductor equipment
makers, and then became anxiety-ridden over the potential for reduced demand for personal
computers. Some Street analysts, in fact, have cited fears of a slowdown in Asian demand in
downgrading their ratings on both groups of companies. Some smart folks think the analysts have
got it wrong.
Dan Hutcheson, president of VLSI Research, a San Jose firm that tracks the
semiconductor-equipment industry, reckons that investors have been handed a buying
opportunity. The biggest concern for the equipment sector, Hutcheson says, has been the
potential for a slowdown in demand from Taiwan, which recently has snapped up about 15% of
global chipmaking gear, up from 11%-12% a year ago.
"People think Taiwan has overbuilt, that they'll crash," he says. Most of what the Taiwanese
chipmakers produce, though, ends up in goods sold in the U.S. and Europe -- not Taiwan or Hong
Kong or Malaysia.
Not only that, but Hutcheson believes the drive by Taiwanese chip producers to build market
share will overshadow their profitability concerns. "They'll spend whether they make money or
not," Hutcheson contends. "People tend to overlay an American bottom-line orientation over
Asian economies. It's the same mistake we made during the Vietnam War."
The real issue for the Taiwanese, Hutcheson says, has been how they'll fund their insatiable
demand for chipmaking gear. Hutcheson says some U.S. equipment leasing firms, including
Comdisco and General Electric's GE Capital unit, have stepped in to provide financing for the
purchase of high-priced hardware used in chip-making plants. The bottom line, Hutcheson says,
is that the sound and fury over the Asian crisis signifies nothing for most chip-equipment firms.
Concludes Hutcheson: "We've looked at it closely, and we see no significant effect."
Hutcheson expects global chip-equipment sales to grow 21% next year, up from just 5% this
year. In 1999, Hutcheson predicts, sales growth could hit 30%, propelled by the chip industry's
move to parts with smaller and smaller lines, first 0.25 micron from the current 0.35 micron
standard, then 0.18 micron in subsequent years. Hutcheson, it turns out, is nearly as optimistic
about overall chip demand, forecasting revenue growth of 22.3% in 1998, up from 9.3% this
year. "If I were in the business of recommending stocks," he says, "I'd be recommending buying
across the board."
Carl Johnson, editor of Infrastructure, an E-mailed newsletter which tracks the equipment sector,
says he's heard no reports of canceled orders related to the Asian crisis. Johnson expects
investors to come away from this week's American Electronics Association financial conference in
San Diego feeling more confident about the sector -- he's been buying Applied Materials,
Teradyne and KLA-Tencor, and some smaller equipment makers, like Cohu, SpeedFam
International and SubMicron Systems.....
Thanks ScotMcI for helping me posting this to SI---PD. |
