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Technology Stocks : General Lithography -- Ignore unavailable to you. Want to Upgrade?

To: SemiBull who wrote (1059)	7/14/1998 11:53:00 AM
From: Andrew Vance	Read Replies (1) \| Respond to of 1305

No one really knows if INTC will or will not deviate from its "carbon copy" strategy, but the odds are they won't. Why change a game plan when it is working so well. HOWEVER, there is serious competition out in the market these days which could force INTC to look carefully at the COO of the new equipment it will purchase. They no longer have the luxury of buying what they want and pricing the differences into the price of the processors they make. Prices and margins on their chips are falling faster than they ever have and they have the added lower margins of the Chips & Technology ICS, if they actually manufacture them in addition to their motherboard business. No one really knows what INTC will do until the orders are announced by the equipment suppliers. You also have to factor in that INTC has delayed some of its expansions and cut back on Capital Spending. Couple this with the possibility that some of the IBM and INTC system might very well be retrofittable to the next generation of equipment technology. This would mean the upgrade could conceivably be the CYMI laser. The nature of the exposure tool business has changed over the past equipment generations where the steppers were priced under $2 million. We must be ever conscious of the fact that the DUV stepper/scanner suppliers are trying desperately to produce modular systems that can be upgraded instead of replaced. On the MII as well as certain new models of the ASMLF steppers, it was noted that the i-line optics/power source could be replaced by a DUV upgrade module that would leave the basic shell intact. This is more of a boon to CYMI for their DUV sources than it would be to SVGL since an upgrade would be a field service call or factory modification. Whatever the case may be, new business opportunities and/or new DUV system orders will be spread around all the major suppliers with the major beneficiary being CYMI. At roughly $7 million per system, you can bet that the new systems will be extremely modular to allow for the replacement and upgrade of the CYMI DUV modules for more advanced modules manufactured by CYMI. This was not meant as a CYMI advertisement again but rather a cautionary note. INTC is not buying much equipment, will probably do the upgrade route first, is not building new fabs or ramping up at the moment. Their CPU demand is down as well as some of their margins. There are delays in new device releases and margins falling faster than in the past. I am not saying this is a dawn of a new day and that the gravy train may be over, but INTC may have just reached a plateau and may finally have some cause for concern in the competition arena. The major reason for INTC's success in the past was its total dominance in the processor field. That is changing and I fear it is changing to a point where historical margins may never be reached again. We might not see the processor become a DRAM like commodity but we will most certainly not see outrageous pricing on processors down the road. As I stated in another post, I do not think SVGL is going to take the industry by storm. They may be the supplier to a few of the major US manufacturers but they are still a niche player. I really do hope that SVGL can take attain glories of the past like when Perkin Elmer Projection Aligners were the industry standard and owned the market worldwide. I would love to see the Canons, Nikons, and ASMLFs take a back seat to SVGL but it just won't happen. Too many I-line systems with other peoples logos on them and the advent of the modular upgradeable stepper will relegate SVGL to second class status. SVGL may experience a burst of success on some initial orders and might even get a few new customers if leadtimes for units from the primary vendors extend to an unrealistic timeframe. IF the industry turns at the same time and everyone jumps back into line for DUV steppers, the combined capacity of all the equipment suppliers could not meet the immediate customer demand. ISI(UTEK) and SVGL could pick up customers when the delivery need for systems is more urgent than waiting for the system you really want. Without a serious competitor for CYMI, I think we are presently capped at 1000 DUV systems per year unless CYMI adds additional manufacturing capacity. I gave a good list of reasons why SVGL has major hurdles to overcome in becoming a major player in the DUV arena. The unit itself is not all there is to consider. It is the maintenance, spare parts, service contracts, Engineering and Production training efficiency and capabilities, and technical support from the suppliers. This is one area (litho) where you want to keep your suppliers to a minimum. The bright side to this is the potential for SVGL if they can make a dent into the business. I believe that they can produce close to 200 systems per year. This is close to a $1.5 billion business for units alone if they can run a capacity. This would definitely make their bottom line and other financials look real good. On the other subject, the core SVGI business (Vertical furnaces, RTP, and CVD) is looking as good as it ever was. To me, this is the heart and soul of the company and they should fare well. I still think they have been a little too complacent and competitors may be nibbling away at their market but they can survive and do well down the road. This SVGI business units is one of the few companies that are poised for greatness WHEN 300mm rolls out. I just hope they keep a good handle on things and make sure a better mousetrap is not developed while they are waiting for this rollout. Continuos improvements need to be made to keep this product line as current and as advanced as possible.