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Technology Stocks : Align-Rite Int'l (MASK) Undervalued compared to PLAB DPMI -- Ignore unavailable to you. Want to Upgrade?

To: Crossy who wrote (263)	11/9/1998 1:12:00 AM
From: LittleMax	Read Replies (2) \| Respond to of 388

MASK, PLAB & DPMI I believe the following material addresses the valuation points you, dlc, and others are discussing. Revenues, in millions of dollars, for the quarter ending as shown (where PLAB's are for the quarter ending one month after MASK's, e.g., Oct '98 for PLAB vs. Sep. '98 for MASK), with decimals where helpful (from 10Ks, 10Qs, and press releases): ..........PLAB...................MASK .............1998......1997......1998.....1997 Dec..........51........40........11,7.....9,4 Mar..........61........49........13.......9,4 Jun...........58........53........14.......11 Sep..........53........55........14.......11 TOTAL..223......197........53.......41 PLAB's revenues peaked in the spring and have declined for two quarters. (PLAB announced that revenues for the most recent quarter, shown as Sep. on the table above but actually ending in October, would be down 5% from the 1997 quarter. I'm using 53M as an estimate.) MASK's revenues have increased for seven consecutive quarters. DPMI, meanwhile, said that 98Q3 revenues declined vs. 97Q3 revenues in all geographic areas (39.4M to 34.9M in North America, 14.5M to 13.7M in Europe, and 14.9M to 12.4M in Asia). DPMI also said that 2/3 of the declines are due to declining selling prices and 1/3 to declining volumes. The 10Ks and 10Qs of each of the companies make it clear that the reason for the strong absolute and relative performance of MASK is that: 1) MASK is more in the healthier markets of North America and Europe and less in Asia, 2) MASK is less exposed to the slowdown on the leading edge (e.g., .25 microns and below, 300 mm, DUV, etc.), and 3) MASK is more exposed in chip types that have held up relatively well in the overall market slowdown. It is thus less likely that MASK is taking market share from DPMI and PLAB than MASK's market areas are doing better than DPMI's and PLAB's. This situation shows no signs of changing since most of the leading and bleeding edge stuff is on hold, Asia is still down, and the MASK chip areas are still the strongest. As an economist (not a semi engineer) I would expect MASK's gross margins and ASPs to be relatively unaffected by a continuation of the current market. After all, if the downturn hasn't shown up yet, what has changed in the past few weeks to make it any different? MASK is reporting strong results and predicting a continuation. Unless deprecation charges for the new ETEC equipment are astronomical, MASK ought to continue perking along in a financial sense and adding .25 micron, OPC, and other leading edge stuff to be ready for the next up cycle. All of which raises the question of why MASK has a valuation about 1/2 that of DPMI and PLAB and a 1998 P/E of 8 or 9. How many other semi companies have seven consecutive quarters of revenue growth, strong and stable gross margins, net income as a percent of revenue in the teens, and a P/E of 8 or 9? Indeed, how many other semi companies have any of these financial characteristics? PLAB and DPMI are fine companies. If the mask market takes off and the leading edge is in demand (e.g., .18 micron, 300 mm, DUV) and Cymer and ASM can't keep up with orders, then PLAB and DPMI will probably do better than MASK in a relative sense. However, MASK would also do well absolutely in that environment. If the market stays where it is, then MASK is underpriced in both a relative sense (1/2 the PE's of the other two) and an absolute sense (P/E of 8 vs. top line growth of 30%). Either way, MASK is underpriced vs. its peer group, underpriced vs. tech stocks in general, and underpriced vs. its performance and prospects. At some point, probably sooner than later, this across-the-board undervaluation will be recognized on the street. I hope this addresses your questions and comments.