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To: jeffbas who wrote (434)	3/22/1998 4:08:00 PM
From: Katherine Derbyshire	Respond to of 955

>>Do you have any opinion as to how far off XRay Lithography is from having any sales significance to suppliers of equipment? Are you familiar with JMAR, which has been developing something in this area for the last 10 years using funding from DARPA?<< I would say x-ray is at least two-three generations (~4-6 years) away from major production buys. I don't see it coming online before the 0.10 micron generation, if then. However, there are many knowledgeable people who will emphatically disagree with me. In particular, IBM is acting as if it plans to use x-ray instead of 193 nm lithography, and a couple of Japanese chipmakers also have substantial efforts. If 193 nm development falters, or if x-ray fulfills its lower cost of ownership promise, then it could really take off. I don't think that's likely, but, as I said, many knowledgeable people disagree. I'm afraid I'm not terribly familiar with JMAR, so I can't comment on them. >>On the higher end mask makers, I thought the secular(?) trend toward more masks because of more complicated chip designs and the rapidly rising mask prices for smaller feature sizes (as noted in a recent post), and the interesting observation that MU is dealing with difficult times by pushing faster to smaller feature sizes, should insure steady sales growth for these guys, almost independent of the cyclical nature of the basic chip business. Is that a reasonable core investment thesis in your opinion?<< Yes. Also, chip volumes are much less cyclical than fab construction. During the great DRAM plunge of 1996, when the DRAM makers were trying to drive each other out of business and the equipment companies were hurting because everyone was cancelling fabs, unit volumes were breaking all kinds of records. Unlike, say, auto plants, which cost a lot to run, the per wafer run cost of a fab is small compared to the capital cost. Even if the per chip profit is very small, it's better than nothing because the fab will be obsolete in 18 months and it has to pay for itself by then. If the core product is losing money (rare, but it happens), then they'll rent the capacity to some fabless house, just to keep the equipment running. (Or else they'll run at a loss to drive their competitors out of business, but that's another discussion--see Micron vs. Korea Inc.) Large unit volumes are good for mask makers (as well as for any kind of consumable supplier--gases, wafers, photoresists, etc.). The mask houses also benefit enormously from the increase in the number of chip designs. Think of all the toys, household gadgets, etc that have silicon in them. A lot of those chips are unique to the application, meaning more designs (more part numbers), and more masks. Katherine