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

To: Donald Wennerstrom who wrote (54552)	11/6/2011 9:02:38 PM
From: Donald Wennerstrom	3 Recommendations Read Replies (1) \| Respond to of 95579

I can't help but commenting more on the Figure 10 of the Yardini report just released this past Friday, 11/4/11. The chart covers a lot of years since 1999, and it doesn't have horizontal lines to make it a little easier to read, but look at how that P/E has been trending down from the left side of the chart. The exception has been the very low level in late 2008, early 2009 to mark the recent recession. This downward trend is in line with many, many of the observations we write about on a daily, weekly, and monthly basis. Looking at the many tables that are posted, the PEs have been coming down - I call it ratcheting down as we go forward to take care of the ever increasing risk in the U.S. and World economy. I keep the same type of data, in the same manner, today that I did back in the 99/00 era. PEs in those days were up to several times higher than they are today for the semi stocks. It is hard to say when this situation will turn around, but for the moment as I look forward, nothing comes to mind that will change in the near term. The question is - how low is that S&P-500 PE going to go before it turns around and starts an uptrend?

To: Donald Wennerstrom who wrote (54552)	11/7/2011 8:56:00 AM
From: Sam	2 Recommendations Respond to of 95579

Thanks, Don. Yes, PE compression has been happening for some time now, reflecting both excessive uncertainty and skepticism about macro conditions as well as a maturing recovery and a belief that these higher earnings are closer to peak earnings. IMHO, the former is surely warranted and the latter is true for some companies but may not be true for those companies that are in the center of the mobile and LED revolutions. A lot of cross currents for sure! Meanwhile, a note on the LED space: New LED Policy in China, but Minimum Impact on MOCVD Demand Industry Overview Citi Asia LED Trip Preview 7 November 2011 ¦ 9 pages citigroupgeo.com Asia LED trip this week — We are leading our bi-annual investment trip to China and Taiwan next week to visit companies. While in China, we are attending the 8th China International Exhibition and Forum on Solid State Lighting (SSL 2011) in Guangzhou where we will meet with key Chinese government officials, industry leaders, and leading companies in the LED supply chain. In Taiwan, we plan to visit several leading LED companies, including Epistar and Lextar. New LED policy for China’s 12 5-year plan will be the highlight — Based on our discussion with conference organizers, the Chinese government is likely to this week officially introduce its LED policies for the 12th 5-year plan. We expect the new policy to cover three new incentive programs to jump start China’s LED industry: 1) a direct demand subsidy/rebate program for consumers totaling 8B RMB (~US$1.3B); 2) R&D grant and subsidy for domestic LED equipment makers, with focus on home-grown MOCVD suppliers; and 3) a policy to promote new business models and partnerships with focus on innovation and IP generation/protection. This is a much bigger deal for fixture/chip suppliers than MOCVD companies — While the new policies will provide great headlines this week – and stocks may continue to react positively – we see limited impact on MOCVD demand in the near term. We estimate a subsidy totaling 8B RMB would drive ~125M 6W-equivalent LED bulbs, which would require anywhere from 25-60 new MOCVD reactors (see our note: Boom Go The Orders, But More Cancels Still Loom; Maintain Neutral). This is ~5-10% of what has shipped into China over the past few years meaning that it just helps soak up some of this capacity rather than drives new tool demand. Such a subsidy is more meaningful for fixture and chip suppliers. Latest checks indicate more pain in MOCVD space — Our latest checks also indicate incremental weakness in the LED space: 1) LED pricing decline continues, and utilization rate at Korea/Taiwan remains at ~50% level; 2) intensifying credit crunch in China with several high-profile LED companies having gone bankrupt in just the last several weeks; 3) MOCVD orders likely to decline for another 2-3 quarters; and 4) higher risk of cancellation of existing MOCVD orders as LED chip makers slowing down expansion pace, and starting to at capacity expansion through consolidation. Still too early to get back into VECO/AIXG — While we will update our stock view post trip, at this point we do not see any near-term catalysts beyond this subsidy announcement. In terms of stocks, given several more quarters of uncertainty and downside risks, we remain cautious on the sector, and maintain our Neutral rating VECO (data storage upside after Thai flood, big market share gain) and Sell rating on AIXG (big share loss and likely to lose money in 2012).