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

To: john dodson who wrote (21110)	7/5/1998 12:13:00 PM
From: Teri Skogerboe	Read Replies (2) \| Respond to of 70976

John, I see the downside as ~ $12/sh, absolute worst case (as you mentioned) and this could be caused by consensus estimates for a recovery being pushed out to the year 2000 or a market-wide correction. In a perfectly logical world, we would be testing the '96 lows sometime in '98 because from all accounts the '98 equip recession is worse than the '96 one. If we didn't know it by now, this is proof positive that the stock market is not a logical beast. AMAT's revenues peaked in FY96 at $4,144,817; FY97 revenues were $4,074,275. EPS estimates for FY99 are all over the map, with Morgan Stanley weighing in at $1.00/sh for 99 and Lehman in their scenario at $2.25. In case we've forgotten, this is a cyclical industry. I would contend that the sellers of AMAT in recent months are a more experienced, knowledgeable group in regards to this industry than the buyers have been. Jacob's Alaska fishing waters analogy fits this situation very well, I think. The semi-chip market is/has been way over-fished. Life is not good. DRAM overcapacity is tremendous from all accounts. Taking some production lines down for a week or so here and there may temporarily prop up prices, but the equipment is still in place, so I don't see how this benefits the equip makers much. They can very easily turn the faucets back on. Foundries are in a much heavier overcapacitied state than they were in '96.. Running at 55-70%.That's 30-45% unused, expensive capacity! On CPUs, no matter what Clark says (-g-), if moving to smaller geometries did not create greater efficiencies, chip makers would not be spending the bucks to make this move to .25. Intel's shutdowns settle the case that they have excess capacity. BARS was all wet, as was our first impression. Flash. ATML is hurting, basically all of the flash makers are hurting. Intel may (that word again) go forward with their new flash fab in Ft. Worth in 2002. Flash certainly doesn't appear to have the ability to keep us out of the soup. All this said, it is completely impossible that everyone isn't aware that things are bad. They have to know, if they live on this planet. The catch may be the extent of the problem isn't fully accepted by the market yet. AMAT is priced as if a recovery is imminent. If/when the market gives up this notion and accepts the seemingly apparent "fact" that new capacity will not need to be added to the market for several years, that will be the time to buy. As for your comment about buying @ 26-28/sh and holding for years. If a person doesn't mind watching the stock fall to 18-20 (or lower, if the worst case scenario happens), then yes, that would in all likelihood work. The market is taking the "glass is half-full approach" to AMAT right now, and seems to be focusing most of its energies at dreaming about the upside potential of AMAT; they are still not focusing on how bad things may get. We are experiencing a double-whammy in that the PC growth rate has slowed. So, the supply side looks bad and the demand side, for the first time in ages, appears to be weakening. Why is AMAT priced as if it is "blue-skies" ahead under these conditions, while many of the equipment makers are closing in on their '96 lows? Because the market is in love with gorillas, is all I can figure. But buying what the market is in love with carries the risk that if something comes along and changes its mood/viewpoint that the stock can go from "O Great One" status to being priced for the "doghouse". None of this even talks about Japan's problems or a possible market correction of 10-20% because we have hashed these several times. We have hashed ALL of this several times. So, bottom line, in my view, is the big risks at this time are the market risk and that the chip-equip recovery is pushed out to the year 2000. Opposing comments are welcome... and Jacob is right, we should all head to the beach now and stop re-hashing this "wonderful" industry. PS. And Justa has a point about the S&P being much higher than in '96. The market is high, IMO... we knew this.