Blast From The Past

Blast From The Past Amidst all the news today one announcement caused us to look at the past. Kulicke & Soffa (KLIC) announced the sale of their test division. From the press release: -- K&S has signed a definitive agreement to sell its wafer test assets to SV Probe, PTE, Ltd. -- K&S has also signed a definitive agreement to sell its package test assets to Investcorp Technology Ventures II, L.P., which is managed by the Technology Investment Group of Investcorp, a global investment firm. K&S invested $290 million to enter the test business. $225 million in cash to buy Cerprobe and then on November 14, 2000, the company announced that it has also signed a definitive agreement for a $65 million cash acquisition of privately held Probe Technology Corporation. What did we say back when K&S made their entry into the test business? Here's a bit of the commentary: "So, what we believe will be necessary is for K&S to quickly build critical mass in the established markets, efficiently integrate the organizations for operating leverage, and invest heavily in a technology strategy that enables finer-pitch wafer probing." The full story is still here at the site: http://www.infras.com/klic.html From what we understand K&S is going to get $27 million from the sale of the test division. Obviously that is not a very good return - and it does not include the 5 years of losses posted by the unit. Ahh... Hindsight is 20/20. Shoulda, coulda, woulda. Acquisition Integration: It's been a thorn in the side of the chip and chip equipment business for a long time. A number of companies are working very hard to adjust the mistakes made in the past. Hopefully some lessons have been learned. Are you enjoying the rally? I am and it seems as though Mr. Market feels good about the sector. Then again, it does not pay to be greedy with chip stocks..... Keep your guard up!

A Faint Echo

A Faint Echo That echo I am hearing is the winter months of '04. This was definitely an earnings, news, and data week that set the table for the rest of the year. There was nothing really surprising on the business front. And that includes the news involved with the semiconductor and semiconductor capital equipment companies. Early in the week I e-mailed my friends a list of things I'm monitoring this year. The list is relatively long and the subject matter is wide ranging. Advanced semiconductor fabrication, nanotechnology, all the way to the evolution of Municipalities considering WiFi networks. On Top of that list: Forecasting. Forecasting the growth rate of the semiconductor and semiconductor equipment business and the action in the stocks. It's 12:52CST here right now. As I write this the Dow is down more than 155 points and the Philadelphia Semiconductor Index (SOX) is down about 3.5%. Yes, it is options expiration day and weird things happen but those drops are fairly sizeable. Didn't the market hear all the good news this week? Had to. Then there's the echo.... The echo tells us to go look at some earnings reports for semiconductor and semiconductor equipment companies in January '04. Hmm.... Outlooks and orders were moving in the same direction they are today. Certainly there are a few differences but none profound enough to scrap the comparison. Second, and very much related to the action in today's market, look at a chart of the SOX and some of the big name chip players during the winter of '04. Ahem... Are we peaking? Has the market priced all this in? What's going to move the group higher? Would it take another +25% jump in business activity, like what happened at Lam Research, to keep things moving up? Is it time to call a top? The action in the market certainly has me thinking.

Are those Bull Snorts?

Are those Bull Snorts? Can you hear the snorts from the herd? The pawing of hooves? Bullish technology forecasts are flying around everywhere. You don't think so? The Philadelphia Semiconductor Index (SOX), at the time of this posting, is attempting to make a new 52 week high. Are we really off to the races? All systems go? The coast is (finally) clear? Well, starting the year with a bang is not all that bad. Have to admit, last year's equity performance was about as exciting as watching paint dry. Here's a quick run down on the performance of a few prominent names:

Company                 Symbol      '04 close      '05 close 

Intel                    INTC          $23.39        $24.98   
Texas Instruments        TXN           $24.62        $32.07   
Micron                   MU            $12.35        $13.31
Advanced Micro Devices   AMD           $22.02        $30.60   
STMicroelectronics       STM           $19.32        $18.00           
TSMC                     TSM           $ 9.91        $ 8.09
Analog Devices           ADI           $36.92        $35.87
Maxim                    MXIM          $42.39        $36.24

Applied Materials        AMAT          $17.10        $18.49
KLA-Tencor               KLAC          $46.58        $49.33
ASML                     ASML          $15.92        $20.08
Lam Research             LRCX          $26.35        $35.68
Novellus                 NVLS          $27.89        $24.12
Varian Semiconductor     VSEA          $36.85        $43.93
Semitool                 SMTL          $ 9.28        $10.88
Ultratech                UTEK          $18.85        $16.42

Cymer                    CYMI          $29.54        $35.51
Photronics               PLAB          $16.50        $15.06

Brooks Automation        BRKS          $17.22        $12.57
Asyst                    ASYT          $ 5.09        $ 6.16
Entegris                 ENTG          $ 9.95        $ 9.42
MKS Instruments          MKSI          $18.55        $17.89
Advanced Energy          AEIS          $ 9.13        $11.83

ATMI                     ATMI          $22.53        $27.97

Advantest                ATE           $21.40        $25.38
Teradyne                 TER           $17.07        $14.57
Kulicke & Soffa          KLIC          $ 8.62        $ 8.84
Cohu                     COHU          $18.56        $22.87 

Amkor                    AMKR          $ 6.68        $ 5.55
ASE                      ASX           $ 3.45        $ 4.49

Cadence                  CDNS          $13.81        $16.92
Synopsys                 SNPS          $19.55        $20.06

The '05 results, for many on this list, are nothing to jump up and down about. Honestly though, I don't think the mixed picture is the least bit surprising. Yes, throughout the year there were periodic flurries of activity on both the positive and negative side. I know a number of investors have been successful trading in and out of these (and other) issues. So, Bull or Bear? Color me this way: Friendly on a few of the industry trends. When it comes to the stocks, it really depends on the company. What I am listening for this year when I meet with companies is an emphasis on long term strategies - strategies that increase shareholder wealth. I know, that's something that should be a given but when you look at what has happened over the past few years chip and chip equipment companies have not been shareholder friendly. The little table detailing '05's performance only scratches the surface. The plan here is to do some major housecleaning. Our rather "idle" Model Portfolio - the one that actually beat the markets in '05 - is going to become brutally selective. Fundamentals will drive the decision making process. ------------------ During the the past few years I've talked about the transitions that companies in the chip industry are facing. This phase is not over by a long shot. A calendar movement is not going to make the challenges disappear. In fact, the pace of the industry's "rationalization, reorganization and restructuring" is intensifying. Don't expect things to become any less confusing. I'll be posting a lot and tweaking the site over the coming days. Drop me a note if you have any questions or comments.