AMAT 37.187 WIRE:
The Asian economic crisis has led to a "tremendous
pause" for the semiconductor-equipment industry, the chairman of SpeedFam
International Inc. said Tuesday.
SpeedFam (SFAM), which makes chemical mechanical planarization, or CMP,
machines used in building semiconductors, is no exception. The Chandler,
Ariz.-based company, which operates in the U.S., Asia and Europe, sees a lull
continuing beyond the May 31 end of its fiscal year and into 1999, James N.
Farley told Dow Jones.
Farley, who joined SpeedFam as a business manager in 1960 - a year after its
founding as a machine-tool manufacturer - said the company should earn 18 cents
a share in the fiscal fourth quarter, matching the mean estimate of seven
analysts surveyed by First Call but well short of the year-earlier profit of 46
cents a share.
The gap between the two fourth quarters isn't as drastic at it looks, Farley
added. Two secondary offerings in 1997 raised the number of shares outstanding
by more than a third, to 16.4 million from 12.1 million. The company completed
its initial public offering in October 1995. Still, the Asian effect on
earnings is clear.
"The growth of 20% to 35% a year in this business has stopped," Farley said.
Most semiconductor makers are experiencing flat to negative growth, and
feeling "shell-shocked," he said - and what hurts semiconductor makers hurts
SpeedFam, one step lower in the food chain. As business slows for the company's
U.S. and Asian customers, they grow more reluctant to invest in SpeedFam's CMP
wafer-polishing systems, which account for about 60% of its revenue, Farley
said.
U.S. customers hurt by Asian markets include Advanced Micro Devices Inc.
(AMD), National Semiconductor Corp. (NSM) and Hewlett-Packard Co. (HWP).
Asian customers, which generate 20% to 40% of Speedfam's annual net income,
include Chartered Semiconductor Manufacturing Ltd. of Singapore, ProMOS
Technologies Inc. and United Integrated Circuits Corp. of Taiwan, Matsushita
Electric Industrial Group (MC) of Japan and, the most recent addition, Samsung
Electronic Co. of Korea. The company operates one plant in Taiwan, one in India
and three in Japan.
The outlook for Asia is mixed. While Korean orders are expected to be slow
for the next year, prospects in Taiwan are "good," Farley said. Japan is a
question mark. Until last fall, potential CMP customers included Hitachi Ltd.
(HIT), Sony Corp. (SNE) and Sharp Corp. (J.SRP), Farley said, but some
companies have since chopped capital-expenditure budgets by as much as 35%.
SpeedFam International's window to future quarters is cloudy, Chairman
Farley added. Before the Asian crisis, the company was comfortable predicting
earnings three or four quarters in advance. Now it sees only about two quarters
ahead - and what it sees, he said, is that the first and second fiscal quarters
of 1999 won't match those of a year earlier.
"The orders, the commitments are coming in a lot more slowly," Farley said.
As expectations have declined, so has the company's share price. SpeedFam's
stock closed Monday at $22. Before the stock market's drop of Oct. 25, which
was triggered by the Asian currency crisis, the shares closed in on three times
that price. The 52-week high, set Oct. 16, is $60.85.
SpeedFam has confronted lower income from Asia by cutting its work force by
12% to 1,150, Farley said. He predicted that the company's developing CMP
systems will rescue it from the problems in Asia. The company has 20% to 25% of
the world-wide CMP market, he said, and its customers must buy or risk falling
behind.
"In the high-tech industry if you miss a generation, you will never
recover," he said.
Analyst Byron Walker, who follows the company for B.T. Alex. Brown & Sons.
agreed that CMP will soften the Asian affects.
Semiconductors, which are components of the advanced integrated circuits
used in computer and telecom equipment and in consumer electronics, continue to
advance, making SpeedFam's technology essential to competitive manufacturers.
"The good news is that these are growth industries," Walker said. "They are
just in a down cycle."
Farley said he expects consolidation in the industry, with his company
emerging - along with rival Applied Materials Inc. (AMAT) - among the three or
four surviving firms.
He wouldn't comment on acquisition plans, but said SpeedFam's international
presence, especially in Asia, where it has done business since the late 1960s -
gives it a strong advantage over smaller competitors.
"It's the cost of being world-wide," Farley said. "There are not many people
who can be all over the world. We were already there."
SpeedFam expects to report its fourth-quarter and fiscal 1998 results July
1. For fiscal 1997, the company reported net income of $20.2 million, or $1.67
a share, on revenue of $173.4 million - excluding revenue from Asian
operations. The company accounts for earnings from those businesses on its
bottom line as equity from affiliates because it operates in Asia as a 50-50
joint venture with Japanese investment firm Obara Corp. |
