Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Teradyne -- Ignore unavailable to you. Want to Upgrade?

To: Gary who wrote (746)	5/9/1998 5:16:00 PM
From: Mark Rosneck	Respond to of 1184

Hi, all. I wrote this over on the Motley Fool board for someone that was interested in the risk of investing in ATE stocks. Thought you might be interested as well. Oleone asks: So what is the down side? . . . I would appreciate your input and experience. The downside is that Automatic Test Equipment (ATE) is a highly cyclical industry. When semiconductors go into a slide (like they are right now), manufacturers often find themselves with excess test capacity (which is what is happening right now). When semiconductors turn back up, they normally try to wait as long as possible to acquire more test capacity. This can create a situation where orders get cancelled as the downturn starts and then they go from zip to huge demand seemingly overnight when things turn back on. ATE is also very much driven by gross margins. In the PC world, the biggest trend is to the "under $1000" PC. The pressure on the ATE industry is to reduce cost of test to support this and emerging consumer entertainment markets (Digital cameras, DVD, Digital TV). TER and others in the industry may respond well to this challenge -- or not. So . . . if you believe that semiconductors will do well in the time horizon you're interested in and you believe that the stock doesn't already reflect these gains, then TER could do very well. On the other hand, PC growth should be about 15% in 1998 but revenue will grow only 6.4%(which means that ATE vendors will be under consider pricing pressure). 1998 overall semiconductor growth should be about 8% and some forecasts show 1999 at 14%. Not real stunning. If you look at the overall forecast for 1997-2002, what you see is semiconductor revenue basically doubling in this period. What that means is that they'll need to be twice as much test capacity between now and then (if you ignore the overcapacity situation of the moment) -- and that's what makes ATE look like such a good investment -- in the long term. Good luck with your investments, Mark