No doubt most of you have seen this. The point I want to make is that historically, semi-equipment share prices begin to turn up about six months prior to the bottom of the cycle. Wasn't it amazing how stock prices peaking in March called the cycle peak in September?
To: Rustam Tahir who wrote (25143) From: Rustam Tahir Saturday, Sep 30, 2000 9:02 AM ET Reply # of 25149
Cautious note from Prudential on Semi-equip sector: 1. Although the current business fundamentals for the front-end semiconductor equipment manufacturers remain robust and customers are clamoring for delivery, recent data points about weakening demand of PCs, cellular phones, set top boxes can no longer be ignored. In addition, macro-shocks caused by sky-high creasing oil prices and a weaker Euro could precipitate further demand weakening. 2. Our thesis has been that the front-end equipment manufacturers could see re-acceleration in their business starting with late December quarter or early 1H01 driven by the capital spending of DRAM manufacturers, the first wave of 300-mm manufacturing line orders from semiconductor manufacturers and the start of copper manufacturing orders. We have been anticipating strong capital spending by DRAM manufacturers, since they have been absent to date. Early signs still point to the resolve of semiconductor DRAM manufacturers to continue their capital spending. However, if the current demand weakness extends to a traditionally strong fourth quarter and to the seasonally weaker first quarter, we believe the risks for the equipment order pushout could become real. 3. Although our strong buy rated stocks continue to trade at highly attractive multiples compared to their peers in the technology industry, semiconductor equipment stocks are likely to remain highly volatile in the near term until we have better clarity on the semiconductor end market demand. If this scenario for the order pushout materializes, we could see further downward pressure on these stocks. We still believe that capital spending by DRAM manufacturers, 300-mm spending and copper spending are essential and are likely to materialize at a latter date if demand softening materializes. 4. Given the heightened risks, we would advise investors to remain on the sidelines, in the near term, until we have greater clarity regarding PC and DRAM demand.