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Technology Stocks : Reliability Inc (REAL) -- Ignore unavailable to you. Want to Upgrade?

To: Pete who wrote (473)	4/29/1998 7:58:00 PM
From: Scott D.	Read Replies (3) \| Respond to of 542

Report from today's annual shareholder's meeting: There was a lot of smiling faces, as most present were long-time REAL holders (REAL is up about 4300% since 1991). CEO Larry Edwards walked up to me, introduced himself, and gave me his card. This was my first REAL meeting, and apparently most other faces were familiar. Then after the directors were re-elected, Mr. Edwards gave a presentation. Some of it was just a review of (and a little bragging about) the numbers for the year. There was a discussion of the growth of the semiconductor industry, past and present. It really has not grown fast since the blow-out year in 1995. The PE of REAL was compared to that of the sector. REAL currently trades at about half of the sector's PE of 22. It was speculated that REAL is guilty by association with a sector that, unlike REAL, has Asian exposure. He spoke of the Asian problem. Korea is the big problem area, because the government financed unprofitable dram operations. He says Korea will continue to dump dram. Japan was also mentioned as a problem area. Taiwan and Singapore were mentioned as exceptions. Another point of confusion is the effect of dram pricing on REAL. REAL is affected more by unit growth of packaged dice, not their selling price. Same goes for Pentiums. REAL is adding $1M in capacity to the Singapore plant to handle the growing unit volume. This plant conditions TI dram. They receive and ship three batches per day. They think the out-sourcing trend for burn-in work will continue. The reason that REAL has been so profitable is "customer selection", according to Sales VP Paul Nesrsta. REAL has been Intel's sole processor burn-in equipment supplier since day one. The other two big customers are IBM and TI. All three are planning to increase equipment spending in 1998 (although not by as much as thought before the Asian problem). REAL's book to bill is way better than the sector's for this reason. They are hoping to gain one more major customer, but no good news in this area currently. The problem is that once one maker's burn-in equipment is designed-in to operations, it is a major problem to switch vendors. Either a competitor has to "mess up", or a company come to REAL for a new design. The two big sellers in the equipment area were discussed. The current Pentium oven, the Criteria 18-D, I think, can handle 1080 Pentiums at once. It sells for $100,000 to $400,000, depending on configuration, The dram burn-in/test oven can handle 8,640 packaged dram dice. It sells for $500,000 to $700,000. A man from Legg Mason was present and asked a lot of questions. I asked about another buy-back, but the Legg Mason man shook his head, and I was told that many institutional buyers require 5M shares outstanding. We got a tour of the whole building. The mortgage is the company's only debt, and they have recently increased the payment. The third floor is all office space. Offices around the edge with cubicles in the middle. The second floor is mostly board assembly. They have two wave soldering machines. One is for high-temperature solder, the other for regular. Power supply R&D is also here. The first floor is production, sheet metal shop, and machine shop. Everything is done at the site except the "messy" operations of welding and painting. The also own the adjacent building. It is currently used for storage, but could serve as expansion space. There was lots of work in progress. Older Pentium ovens were undergoing enhancements ordered by Intel. Pneumatic devices are being added that seat and eject the boards with the push of a button (these are big boards, covered with dozens of Pentium sockets). The existing swing-open doors are being replaced with garage-like up and down doors, to save space. There was an R&D area. One project involves non-air cooling. It addresses devices that dissipate in excess of 100W. The company is targeting 20% average growth. Average was stressed here. Competitors are J.E.C, Fujitsu, Ando, Aehr, and Micro Controls. Strongest is Ando. Strongest US is Aehr. Power supplies. Customers are Digital Switch, HP, DEC, and Italitel. New models will handle up to 30W. REAL specialized in high isolation models of DC-DC converts. And yes, the web page is coming.