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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (19659)	5/24/1998 9:42:00 PM
From: Proud_Infidel	Respond to of 70976

From Forbes forbes.com CHIPS ARE EVERYWHERE. They're in your PC, car, refrigerator, and a bazillion other places you may not even suspect (see "Your Day, Chip by Chip," page 84). Yet as pervasive as semiconductors are today, they'll become even more commonplace in the future. So how do investors capitalize on this? One obvious way is to stock up on hot chipmakers. But there's a potentially more profitable opportunity if you're willing to drill a little deeper and weather the usual volatility associated with high tech investing. It's infrastructure. Chip equipment companies that supply manufacturers with the expensive equipment, software, and materials needed to build semiconductors are benefiting from the same growth that's fueling the digital revolution. The technology isn't simple, but fewer players and more straightforward market dynamics make this category easier to digest for the investor without a Ph.D. in electrical engineering. One important semiconductor industry trend involves the ongoing effort to shrink circuitry. Smaller wiring allows chipmakers to cram more transistors per chip, thereby boosting processing power. Today, most chipmakers are still making the transition from .35 micron technology to .25 micron. Soon, they will move to .18-a shift that will require especially heavy capital investment. And by the time that transition is complete, the race to .13 micron technology will have already begun. Each stage is more complicated and expensive than the last. And that's good news for the equipment companies. Other technical advances also portend good fortune for the capital equipment sector. The shift from aluminum to copper wiring on chips-an enhancement that increases speed and lowers power consumption-will force semiconductor makers to retool existing plants and build new ones. And a switch to something called "low k dielectrics" will have similar effects. Relax. Don't get bogged down in the technical language. BancAmerica Robertson Stephens analyst Sue Billat provides a simple analogy: "Today's chips are like a slow swimmer in a pool of molasses. Copper gives us a faster swimmer." And, adds Billat, "Low k dielectrics change the molasses to water." Chipmakers have been using aluminum since the first transistor, so the switch to copper represents a huge shift and an enormous opportunity for equipment companies. Finally, a gradual move to larger silicon wafers will serve as an additional push for fab retooling and automation. Currently, semiconductor manufacturers use 200mm wafers, but many hope to go to 300mm in the next few years. A few manufacturers such as Siemens are experimenting with the larger slabs this year. A bigger wafer means more chips per slice of silicon, lower costs, and higher yield. And, of course, more new equipment. So which companies are the industry's strongest players? Applied Materials (AMAT), Novellus (NVLS), and KLA-Tencor (KLAC) are all recognized for their seasoned management, strong finances, and winning technology. Billat says, "The strong firms gain market share in the downturns and mint profits in the good times." That's the recipe for success in this industry, and the game these three are playing. All are long-term buys. Don't get me wrong. The chip equipment sector isn't a slam dunk. In fact, it's a dangerous place for the investor trying to turn a fast buck. The industry is inherently cyclical. That's why you have to commit to the long haul. One seasoned observer warned that in every cycle the capital equipment companies are the first to suffer and the last to recover. The key is to ride those waves as they trend higher and pick financially sound players that can weather the storms. Historically, annual growth has hovered around 20% and is expected to stay there. "Investing in semiconductor capital equipment companies is like Acapulco cliff diving," says Hambrecht & Quist analyst Gus Richard. "When you see the rocks, and it looks deadly, that's when you jump in." So when bad news hits and chip equipment stocks swoon, hold your breath and jump. Just don't think about the drop.