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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (5521)	5/25/1998 1:08:00 AM
From: shane forbes	Respond to of 10921

Jacob: (1) Re: It sounds like your buy-in price for AMAT is about 24. Is that right? Do you have a buy-in price for INTC? I guess that would depend on when AMAT hits 24! If it does so in Nov. then I'm buying the whole enchillada. If AMAT hits 24 in June/July then I am just nibbling. I guess my premise is that business will get worse before they get better - I think next year esp. mid year forward things will be very good for the semi-equips - so the closer we get to mid -1999 w/o an AMAT collapse in stock price the more nervous I get! Re: INTC - I actually don't intend to ever buy INTC - just a personal quirk - I don't invest in companies with over $10+ billion in revenue - no fun - everyone is doing the same - removes any excitement of finding something "undiscovered"... (2) RE: I see two other companies making IBM-compatible desktop CPUs, both of them doing as well as they've ever done, and both still losing money. I see Apple has mostly finished self-destructing. I see IBM becoming a service company, and Motorola flubbing the transition from analog to digital I must be a maverick sort but I actually like IDTI's chances. Apple is born again. MOT may be back in a couple of years (check out Forbes article). IBM is also a top-notch semi foundry. (3) RE: Cheap PCs are a growing percentage of the market, but that's because the market is getting bigger. I don't think that the market getting bigger is the reason that cheap PCs are a growing percentage of the market. At some point elasticity comes in but I also think there is a major switch that has gone on for the last 1 year or so - people buy a $1000 PC instead of a $2,500 PC. For proof go to your local CompUSA store and check out the price of computers being offered. Or read CompUSA's 10-Q. What is happening is people don't need a faster more expensive PC because a cheaper slower (everything is relative...) PC gets the job done today. And tomorrow we will have a $500 PC that will enable you to surf the net and that will be the driver - throwaway PCs as a recent Byte article suggested. (3) RE: On the last conference call, Morgan of AMAT confidently predicted those people would want more expensive silicon when they bought their second PC. Sure Jim boy would say that. Now that DRAMs are gone, Morgan needs to make sure that someone is making money somehow. Otherwise no one will be able to afford his company's equipment down the road. Consumers replace PCs, VCRs, etc when they perceive a need to do so. Two years down the road all today's $1,000 PC buyers will be buying $500 PCs with 5 times the processing power and will be very happy. Besides the $1,000 PC was bought on average say 6 months ago. Do these people replace it in the next 6 months with a $2,500 PC - I don't think so. The lifetime I'm guessing is at least 2 years. (4) RE: A 5% change in chip demand (you're right, it's really the demand/supply balance,especially for commodity chips) causes a 10% change in semi company profits (because of their high fixed costs), which causes a 20% change in orders for semi-equipment, which causes a 40% change in semi-equipment companies' stock price today, and a 40% change in semi-equip profits (6 months from now). Caveats: I'm crudely oversimplifying. It's an algebra (not calculus) equation. I would only add that first to reach these kinds of numbers the semis have to be producing at least as much to cover fixed costs. Then the higher the incremental revenue they produce above this hurdle number the larger the piece that falls to the bottom line. As you know it's not a liner relationship. Unfortunately for many of the DRAM companies they are barely able to cover their fixed costs today. (5) RE: Those percentages are wrong (can you do better?) I wish I could! We'd have the words to open the cave of Ali Babba. (or something similar). Shane.