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

To: Math Junkie who wrote (27633)	1/8/1999 6:06:00 AM
From: Duker	Read Replies (1) \| Respond to of 70976

I also just wanted to add a touch on this MU exchange. First, a disclosure: I bought MU at $22.08 on the a few months back. It was to be my SemiCap hedge. Thesis at the time: If MU was "never" going to spend again, the capacity situation would rectify itself and MU would benefit (at the expense of all the cap guys ...). So, I spent some time trying to get comfortable with the business at MU. This can be a shockingly profitable business in a tight capacity situation. In 1995, the February quarter, Gross Margins on ICs were about 68% ... with a corporate GM at 57.4% (for the year, those numbers were 67% and 55% respectively). That was DRAM Nirvana -- the runner's high of the DRAM business (or more appropriately, the heroin user's fix ... as the industry analogy goes: The Semi guys are the addicts, and the SemiCap guys are dealers ... they are the only people the former can call on to FeelGood ... unfortunately, the SemiCaps have to pay taxes). Getting back to MU and SemiCaps ... In 1995, the corporate OM% was 44% ... the world was good, very good. Analysts performed their art of masturbation (i.e., linear extrapolation) and came up with $17/share in 1997 (vs. the $4/share in 1995); and a potatoe <g> farmer felt comfortable with $12 ... as he soared up the Forbes ladder. Importantly, in 1995, the company had an asset base that was minute relative to today's base. Just looking at PPE: 1995: $1,386 v. 1998: $3,031 (+119%). What would the operating cash flow / leverage look like today in a tight supply environment? I would forward: huge. Do we ever get there again, to the Nirvana? I don't know. But, all they have to do is chase the dream. In FY1996, in an effort to maintain the high, MU spent $1.7bn ... an increase of +81% v. 1995. Now, with a much greater asset base, what would CapEx (both maintenance and capacity additions look like? I would forward: huge. So, how does the story end? Well, the hedge worked. MU appreciated and I (feeling like a genius), traded it out at $32 7/8. Why? Two reasons: 1) The SemiCaps got really cheap and were getting cheaper. The purpose of my hedge was to use DRAM profits to pay for/pay down mgn for my SemiCap fancy. I did this ... though, I bought a bunch more LRCX v. AMAT ... the "arb" was huge in my opinion. I am not surprised that MU went up after I sold it. I am surprised by how much (he says with a whimper!) 2) I am much more comfortable investing in AMAT et. al. because I believe that they will actually generate Free Cash Flow over time. DRAMs will not, IMO. They would be lucky to break even on a CF basis, hoping to get back or sustain 1995 type profitability. And, though AMAT does not generate gobs of free cash currently, it does generate cash (ironically, as the cycle turns down and ARs and INVs retreat to normal). More importantly, the cash that gets thrust back into the business generates and has the potential to generate above average returns ... certainly more than I can do. That is my morning drivel. --Duker

To: Math Junkie who wrote (27633)	1/8/1999 12:26:00 PM
From: Paul V.	Read Replies (2) \| Respond to of 70976

Richard, It ultimately depends on what type of gains one is looking for (20-50% or 100-200%). Many individual who have invested in AMAT have doubled or tripled their money in AMAT in 2 1/2 years. Just ask Lester E. Brian, probably will have come close or have doubled his money from his $54 high purchase last in 1997 I believe when he gets near $100 in AMAT this cycle. Just my opinions. Paul

To: Math Junkie who wrote (27633)	1/8/1999 12:27:00 PM
From: Skeeter Bug	Respond to of 70976

>>One thing you need to keep in mind about the semi equip business is that it takes a long time to get a fab up and running.<< excellent point and very true. why should a couple qs of slow cap exes last year mean prices will zoom this year when it can take years for that money to actually be felt in the market place? there are many ways to skin a cat and there are many ways to increase output. one is to spend gonja money on new stuff. mu has proved that this isn't the only way to increase output. people will ALWAYS buy cap equipment. it just depends on how much.