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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Teri Skogerboe who wrote (15143)	1/29/1998 10:55:00 AM
From: Carl Quigley	Read Replies (1) \| Respond to of 70976

Thread, I don't remember this one being posted. Stock Ticker Close-up Semiconductor Equipment Growth Forecast for '98 January 21, 1998 By Brett Hodess Whenever technology stocks dip, the semiconductor equipment makers seem to get hit first, and often hardest. Concerns regarding Asian currency devaluations and memory-chip pricing, combined with swings in the overall market, caused an extraordinarily sharp decline in semiconductor equipment stocks at the end of December. However, we believe the main concern in the future will be supply and demand for chips, rather than currency issues. If chip demand is sufficient, efforts to improve chip testing and yields, to lower dynamic random access memory (DRAM) costs and to convert memory factories to foundries should enable the semiconductor equipment market to grow in 1998. Also, if European chipmakers rebound--and open their wallets--the equipment market will get an added boost. Front-End Fab Gear vs. Testing Gear We believe DRAM cutbacks and the Asian financial crisis will result in slow or possibly down sequential quarters for some equipment makers. Front-end wafer fab process companies will bear the brunt of the slowdown. Orders from Korean companies have already started to slow. Dongbu, a Korean joint-venture DRAM startup, has been postponed indefinitely because of tight financing. Similarly, Hyundai Electronics Co. Ltd. and LG Semicon have postponed massive fabs planned for the United Kingdom. But we estimate that back-end areas such as test and assembly will each grow about 10 percent in 1998, while fab equipment sales will increase only 2 percent to 3 percent. On the fab side, we expect high differentials in equipment growth rates. Deep-UV (ultraviolet lithography for 0.25-micron and below chips), CMP (chemical mechanical planarization), high-density plasma CVD (chemical-vapor deposition) and automation and process control (yield enhancement and measurement equipment) should continue to outperform the overall front end. DUV, CMP and HDP CVD are three of the key technologies driving a rapid transition to more advanced chips, while automation and process control are productivity (i.e., cost reduction) enhancement tools. CMP and automation have been more leveraged toward logic devices (microprocessors and digital signal processors) but are beginning to be adopted for DRAMs. Also, many DRAM companies that stopped spending on 16-megabit DRAMs earlier in the year have begun to follow Micron Technology Inc.'s example, aggressively shrinking the size of 16-Mbit chips. This strategy is driving a sharp increase in capital equipment upgrades in existing DRAM fabs. The idea is to reduce the die size by moving from 0.35-micron to as low as 0.25-micron, thereby cutting costs so as to remain profitable, even as 16-Mbit DRAMs hit sub-$3 spot-market pricing. Numerous Korean, Japanese and Taiwanese memory suppliers are taking this route. We believe the upgrades will drive substantial bookings growth in the near term for equipment companies. Test-equipment makers will benefit from a major upgrade cycle for logic, mixed-signal and memory testers that is well under way. New gear is needed to test high-speed integrated circuits that cannot be handled by the current installed base of slower-speed testers. Finally, as DRAMs remain in overcapacity, many memory makers may try to convert their fabs in order to subcontract chip manufacturing for other suppliers. Our Growth Forecast Based on the Korean financial crisis, the DRAM oversupply situation, findings from our recent visit to Asia for Semicon Japan and our subsequent meetings with numerous semiconductor and semiconductor capital equipment companies, we estimate that semiconductor capital equipment spending growth will be in the 5 percent range in 1998. That's down from our previous estimate of 12 percent. We estimate that Korean investment will decline about 25 percent in 1998, with Japan flat and Taiwan up 12 percent rather than 15 percent to 20 percent. Our U.S. and European estimates remain unchanged. The overall impact of the slower growth rate reduces our 1998 estimated equipment market sales by 6 percent to 7 percent, or slightly less than $2 billion total. Valuation and Investment Opinion We believe the majority of the bad news is already in the stocks. During periods of uncertainty, price-to-sales has been a better indicator than price-to-earnings for this group. On a historical valuation basis, if the group maintains operating margin profitability in the 10 percent and greater range, as we expect it to through 1998 (group average is about 12 percent currently), we don't believe the group will trade much below two times the 1998 market-cap-to-sales. The long-term average price-to-sales has been 2.1 times for the group. Brett Hodess is a managing director and senior research analyst in the technology group at NationsBanc Montgomery Securitiy.

To: Teri Skogerboe who wrote (15143)	1/31/1998 1:34:00 AM
From: Paul V.	Read Replies (2) \| Respond to of 70976

Teri, and threaders, Have you noticed that in the IBD that the Accumulation changed from a "C" on 1/21/98 to a "B" to the current time. Relative Strength has moved from a 40 on the same date to 50 currently. The Group Strength still remains at "E" with the number of funds owned at 403. Looking back to the last run up from 8/96 we saw a R/S run up from 14 in August '96 to 50 in November '96 to 80 the beginning of December '96 reaching a high of 87. AMAT then retracted to 60 the last of December prior to running up to a Relative strength of 98 on May 1, '97. According to my Dorsey Wright projections and the IBD Relative Strength movement IMHO I believe we are seeing the upward movement of AMAT in the immediate future. As I previously posted, today, we reached a triple high with my projection of a high of $68 based on current data. It is a shame that the IBD does not chart the R/S of the respective stocks. Just my humble opinion. Paul V.