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

To: Proud_Infidel who wrote (20078)	6/10/1998 4:06:00 PM
From: Proud_Infidel	Read Replies (1) \| Respond to of 70976

Cramer thinking of entering the semis. Not quite yet however. Wrong! Tactics and Strategies: Beware the Chip-Equipment Stocks By James J. Cramer 6/10/98 1:56 PM ET To get a true bottom in drives that is sustainable, we need someone to go out of business, not get more capital to stay in business. No sooner did I highlight that maybe it was time to take a look at the semiconductor-equipment and disk-drive stocks than Lattice (LSCC:Nasdaq) Western Digital (WDC:NYSE) and Read-Rite (RDRT:Nasdaq) blow up. Nothing like a convenient reminder to validate my partner Jeff Berkowitz' vision to stay away from these nasty boys. Why are these two groups eluding any sort of bottom? Frankly, these two sectors turned out to be more leveraged than any other to East Asian problems. In different ways. For the semiconductor-equipment companies, the Koreans, Taiwanese and Japanese remained the largest source of clients despite the resurgence of American manufacturing. The numbers you are seeing now, including the preannouncements, reflect the distinct lack of turnaround in this sector. In fact, it represents a deterioration. Many of you, I know, are salivating to buy these stocks, especially the quality choice among them, Applied Materials (AMAT:Nasdaq). I know I am, too. Under $30 I am drawn to it like a magnet. But I defer to my sleuthing partner, Jeff, who has adopted a wait-and-still-don't-see attitude that has saved our firm mucho dollars. No bottom yet, is the only thing he will keep saying. So far I have been wrong; he's been right. Let's go with him. The drive problems have less to do with customers and more to do with competition from East Asia. Disk drives aren't that hard to make, and the assembly of them has always been done well in East Asia. The reliquification of Maxtor -- chronicled outstandingly by Adam Lashinsky in the San Jose Mercury until a little glitch about dilution in terms of the underwriting filed by these guys -- is just more bad news. To get a true bottom in drives that is sustainable, we need someone to go out of business, not get more capital to stay in business. As neither Seagate (SEG:NYSE) nor Quantum (QNTM:Nasdaq) nor Western Digital is about to file for bankruptcy -- they are all surprisingly liquid for this part of the down cycle -- the more likely spur for a bottom will come from some sort of very-needed consolidation. In the meantime, after today, a ton of risk has been taken out of the group, causing value guys to once again take a shot at these woeful players. (Of course it is a bit of a domino game here, as Read-Rite is a large supplier to Western Digital.) In this group Jeff and I see eye-to-eye. We like the values, we just don't like the time frame. It is still too early in the year to act big on these stocks, except Seagate, which we have a position in and acts quite well, as people are getting their arms around the idea that Western Digital, not Seagate, is the real casualty of this cycle. So, if you want to bottom-fish, may I suggest that the suppliers will hit bottom ahead of the semiconductor-equipment stocks, and that this Western Digital news pushes back any price recovery for the group until at least August. Cheap doesn't cut it, at least not yet.