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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Mason Barge who wrote (4537)	1/23/1998 12:28:00 AM
From: Wes	Read Replies (8) \| Respond to of 10921

To All: There has been much discussion on the particulars of the current state of the semiconductor industry. I would like to propose that we ALSO exchange some BROADER (longer range) impressions on the outlook for the industry. So, in this spirit, I will offer my "impressions". I would like to invite any comments/feedback: It seems that many don't recognize the severity of the current woes facing the high tech industy. Many seem to think that this (Asia/overcapcity) will all blow over soon. I'm not so optimistic. I get the sense that the high tech industry is suffering from a prolonged (not short-term) period of overcapacity, not just for a period of 1 year or 18 months, but I suspect that this situation will last for many years to come. Heading into 1997, it was hoped that the slowdown of 1996 was brief and just a "bump in the road", and that the industry would soon return to its brisk rate of growth. (hence, the sharp rise in tech stocks this summer) But even before the Asian Crisis, we saw memory prices continue to fall sharply throughout 1997, and the industry "recovery" could at best be called mild. While the demand for semiconductor parts still remains healthy, the capacity to meet this demand is still excessive and will apparently remain so. Now, with the Asian situation, the tenuous semiconductor industry recovery will severely be set back. It has been argued that the Korea is the only real "high tech" economy affected by the crisis, and that it accounts for only a small percentage of worldwide semiconductor business. However, it seems that the overall capital squeeze throughout the region is having adverse affect on businesses EVERYWHERE in Asia, including Japan which has its own financial difficulties. All of this translates into a severe cutback in capital expansions in ALL areas of Asia. (A recent post highlighted the cutbacks in Japan.) With Asia previously seen as the fastest growing region, its impact on the growth models will be proportionally greater than the percentage of semi sales it currently accounts for. Naturally, the turmoil in Asia will have a serious impact domestically, most obviously by exaserbating the overcapcity problem. Businessweek (12/29 issue, page 38) talked about this very issue, citing the recent series of disappointing earnings and pushouts of new products. Here in the SF Bay Area, there is a real sense that Silicon Valley is facing a serious slowdown. The layoffs announced last week at Seagate and Netscape are tangible indicators of this slowdown. For the semi-equipment sector, the delay in the much touted transition to 300 mm wafers reflects the reluctance of semi makers to purchase new equipment. So, the synthesis of all of this is: Looking at the first half of the 90s, the semiconductor industry was characterized by spectacular growth and undercapcity. Semi-makers frantically added manufacturing capacity to keep up with what turned out to be wildly optimistic expectations of growth. The second half of the 90s, by contrast, is being characterized by chronic overcapacity and oversupply. Companies in this period are trying to consolidate and stay profitable as chip prices fall. This is a secular change in the state of affairs could persist through 2000. Just think about this: at the end of 1995, I remembered that the SIA projected worldwide semiconductor sales of $200 billion for 1996 and sales of $400 billion by 2000. In contrast think about this: 1997 sales were just shy of $140 billion, and we would be very, very lucky to even see $200 billion by 2000. These are huge differences between expected and actual...differences that have severe implications for the equipment business that supports the overall semiconductor business. As recently as last summer, Applied Materials was forecasting $10-15 billion in revenues by "sometime early next century". This projection was a vestige of the over-optimistic growth models of before. So the bottom line is this: In figuring our investments, we must throw out the old models and "timetables" that we've held over the last couple of years for the semi-equipment industry... and figure out new ones. We must also keep in mind that the Asian mess may not have been completely revealed yet and that a quick and easy fix (as in Mexico) will not be possible. The current slowdown is not a matter of months or quarters, but possibly YEARS!! Anyways, I invite comments and discussions. Thanks to you all!! Wes

To: Mason Barge who wrote (4537)	1/24/1998 6:07:00 PM
From: John Chalker	Read Replies (1) \| Respond to of 10921

Mason, My purpose was to put all the info into perspective. If the Japanese cut spending in this area by 200 billion Yen, that's about US$1.5 billion, it's a lot of money. But, no one I know was expecting them to increase spending in 1998. In fact, given that their spending has consistently declined since 1995's high of 886 billion Yen, a continued drop should not have been a surprise. Now look at their share of the world market, their spending relative to INTC's spending plans of roughly $4.5 billion for 1998 (the missing money reflects the DEC plant acquisition as stated in INTC's conference call.)And finally, why aren't you commenting on the growth in the US, Taiwan, and Europe?? You seem to be blind to these other regions of the world which are equally important to the industry. Other people are beginning to focus here, and on Korea's improvements,too. Let's look at ALL the factors, not just the one's that fit our bias. Another positive in Japan is the reduction of 16Mb DRAM production and the accelerating move to increase 64Mb DRAM production using the .25 micron process. My conclusion is this: I believe that blood levels are dropping in the street, and stock prices are stabilizing. When they complete Korea's debt restructuring next week, look out for a possible rally. Chalks