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

To: Katherine Derbyshire who wrote (22737)	8/10/1998 11:19:00 AM
From: Justa Werkenstiff	Read Replies (1) \| Respond to of 70976

Katherine and All: Interesting take on Siemens plant closure by Lehman. FWIW, covered my AMAT short and banked the two points as risk-reward reached close enough to neutral level for me: Headline: SIEMENS : Closure of Plant to Almost Halve Semiconductor Losses Author: Chris Heminway 44-171-260-2565 Company: SMAWY Country: COM CWG Industry: ELECTS Ticker: SMAWY Rank (Prev.) : 3-Neutral Rank (Cur.) : 2-Outperform Price : 132 (DM) 52wk Range : 100-139 Todays Date : 08/03/98 Exchange Rate : 1.769 Fiscal Year : SEPTEMBER ADR Ratio : 1 for 5 ADR Price : 14.36 52wk ADR Range : 11.26-14.11 ------------------------------------------------------------------------------ Net Inc. Dividend N Yld CFPS EPS EPSADR P/E P/CF (DMM) (DM) (%) (DM) (DM) ($) 1997 E 2613.00 1.50 1.1 15.20 4.80 0.55 1998 E Pre 3240.00 1.50 1.1 16.00 5.60 0.64 23.6 8.3 1998 E Cur 3240.00 1.50 1.1 16.00 5.60 0.64 23.6 8.3 1999 E Pre 4127.00 1.60 1.2 17.90 6.90 0.87 19.1 7.1 1999 E Cur 4127.00 1.60 1.2 17.90 6.90 0.87 19.1 7.1 Market Capitalisation : 74491 (DMM) Shares Outstanding : 56.5 (M) Stock Ex. Listing : London F'furt OTC Price (As of 7/31 ) : 132 (DM) Index : DAX Value : 5880.87 Disclosure(s) : Exchange Rate per $ : 1997A 1.74 1998E 1.76 1999E 1.59 Book Value Per Share: 45.6 Price\Book : 2.79 ------------------------------------------------------------------------------ * Siemens announces the closure of North Tyneside DRAM plant at cost of DM 1B. * Stems losses of about DM 450m pa - around half the losses in Semiconductors. * Closure caused by 95% drop in DRAM prices since 95, accentuated by Asia... * ...and raises strategic questions regarding rest of Semiconductor Group. * Decision gives 10 point restructuring plant substance:2:Outperform. ------------------------------------------------------------------------------ DON'T DISTRIBUTE TO RETAIL CLIENTS BEFORE CHECKING STATE BLUE SKY RESTRICTIONS ------------------------------------------------------------------------------ Siemens today (31/08/98) announced the intention to close its semiconductor plant in North Tyneside (UK) which had been losing approximately DM 450M pa, at an estimated cost of DM 1B. Despite the high closure costs of the 15 month old plant and the failure of the investment that this represents, the action will reduce the annual losses attributable to the Semiconductor Group, which CEO Dr.Heinrich v.Pierer has indicated will exceed DM 1B (prior to the exceptional charge for the above) this year. It is also indicative of the action that the company is willing to take to put substance behind the recent 10 point restructuring plan. From this point of view, the closure should be viewed in a positive light, although it does raise questions regarding the future direction of the Semiconductor Group within Siemens. The decision to terminate activity at the plant stems primarily from the persistent and prolonged decline in the price of memory chips, which has decreased by 95% since the decision to invest in the plant in 1995. This trend has been exacerbated in recent months as the effects of the Asian crisis have taken their toll. The most significant of these effects has been global overcapacity, accentuated by the recent pricing policy of the Korean players (who supply about 40% of the world DRAM market), pushing down the price of 16Mbit chips to the point where, according to Siemens, prices no longer cover the production costs of even the lowest cost manufacturers in the world. The Asian crisis has had a secondary, more direct impact on the plant, with the cancellation of a contract by an Asian manufacturer which would have secured the sales of half the plant's manufacturing output for the next ten years. The cost of closure of the plant, at DM 1B, appears high at first glance. However, considering the DM 1.3B of leasing commitments tied up in the plant,this figure can soon be arrived at. The company has not clarified whether the subsidies received from the government for the plant's construction, which it intends to repay, are included in this amount. Siemens has attempted to find a buyer for the facility in recent months but given the overcapacity in the industry, it is hardly surprising that there have been no takers. Turning to the future of the Semiconductor Group, the company has suggested that there could be job losses in the remaining four semiconductor plants but has not, as yet, indicated that there are plans for further closures. Strategy in the Group is turning to ways in which productivity can be enhanced, with the company planning to switch from 0.35 micron to 0.25 micron structures, with anticipated productivity gains of up to 100%. Additionally, it is planning to accelerate the transition from 16Mbit to 64Mbit chips, with the former to be almost phased out in the coming fiscal year. Whether this can lead to the division turning a profit is another matter given pricing pressure is so strong but at least the closure of the North Tyneside plant will cut losses in the division by half. Together with the support that the intended closure gives to the restructuring programme recently announced, we are encouraged to maintain our 2-Outperform rating. Document2