BUY RECOMMENDATION II - CYMER, Inc.
(NASDAQ - CYMI)
On February 1, 1998, we informed our e-mail
subscribers to purchase shares of CYMI at $16.56
Product Overview: Cymer Inc. is a leading manufacturer of
deep ultraviolet (DUV) illumination sources for microlithography
applications. Its excimer lasers are designed to meet the volume and
reliability requirements of semiconductor production fabs. The
company's customers include all five manufacturers of DUV
photolithography systems: ASM Lithography,
Canon, Integrated Solutions, Nikon and SVG Lithography. Products:
5000 Series - Offering the industry's fastest repetition rate of
1000Hz, this solid state pulse power excimer laser is engineered using
modular construction. It is designed specifically for use in
manufacturing semiconductors with 0.25um and smaller design rule
features. The higher repetition provides better dose control in
stepper applications, improved exposure uniformity in scanner
applications and significant improvement in wafer throughput of both
stepper and scanner lithography tools. This series includes two
* ELS-5000 - Providing 10W of output power, it supports refractive
lens designs. This model is used by ASM Lithography, Canon and Nikon,
for bandwidths less than. 8pm, in stepper and scanner applications.
* EX-5000 - With 15W of wider bandwidths output, this model
accommodates catadioptric lens designs and is used by SVG Lithography
Systems Inc. scanner applications.
WHY WE LIKE IT !!!THE POSITIVE FACTS:
- Revenues for 1997 ending December, 1997 . . . $203,647,000
$64,995,000 net income per share diluted .86
- 52-week stock range $14.375 .... $49.25
- Shares outstanding 30 million.
- Book value as of January 30,1998 .... $4.15-price to book-3.99
- Price to sale-2.4
- Price to Earnings = trailing 12 months-19.2X
- Cash -$132 million and $42 million (long term investment) -
- On or about January 29, 1998-CYMI announced $50 million share
- 997 net income up 300% on 213% revenue
- IPO-September 19, 1996-3.4 million shares @$9.50, Secondary
December 12, 96 2 million shares @ $42.00-during 1997 a $175 million
debenture sold and convert @ $43 or so!
- Product revenues for 1997 reflected the sales of 460 lasers,
compared to 145 in 1996. During the fourth quarter, this number
totaled 133 laser systems, 131 of which were for use in
semiconductor photolithography applications. Gross margins on
product sales reached 40%.
- At year-end backlog was $108,704,000.00
- Management controls 14%, large short position, recently upgraded
by two brokerage firms (Morgan Stanley-bullish firm with clout).
- Company believes that it controls 90% of its market. - According
to independent market analyst, the DUV lithography market is
currently projected to grow at a compounded annual growth rate of
28% through the year 2000.
- According to industry analysts, the worldwide market for
semiconductors was $138 billion in 1996. Key to this growth is
Moore's Law, named for Dr. Moore, chairman emeritus and founder of
Intel. In 1965, Moore wrote, "the average power and complexity
of the silicon chip will double every 18 months with proportionate
decreases in cost. As this trend continues, enabling technologies
such as deep ultraviolet lithography will be critical to the
industry's ongoing success.
- New products to be released during 1998 that management believes
will raise the competitive bar more in a single step than ever
before in the history of CYMI.
- Deep-UV is ranked as one of the fastest-growing sectors in the
global lithography marketplace.
- Possible takeover candidate
- During 1996, the company increased its clean room manufacturing
space to approximately 11,000 square feet, added twelve new test
- Vector Vest placed a buy recommendation CYMI - means something,
but we are not sure what!
- On February 11, 1998, Motley Fool adds CYMI to "Stock Fools
Love". In our opinion, they made a great choice.
- Semiconductor equipment outlook for 1998 is uncertain due to
economic problems, primarily in Asia. Most predict some increase in
expenditures in 1998. In reality, technological developments require
many manufacturers to upgrade their production processes, or lose
their technological edge. CYMI may be more immune - more than most
- According to the industry experts, the finer features developed
at .25 micron allow a manufacturer to boast the number of chips
produced/wafer by a factor of two or more over the number produced
using existing .4 or .5 micron processes, resulting in higher
margins and making the production process much more cost efficient
even after considering the expenses of the new .25 micron equipment.
Super bullish for CYMI!
- Worldwide sales of semiconductors are expected to double by the
year 2001, to $300 billion from $149 billion last year (according to
- Since chips are getting more complex, exacting and difficult to
manufacture, new technology will allow leading manufacturers to
increase efficiency, margins and profitability. Great possibilities
- Due to trends, new semiconductor equipment should increase 15% to
20%/year or more over the five years as manufacturers add new
equipment, processes, and upgrade existing facilities. In a mature
U.S. economy that is growing at 3%/year, sectors with this type of
growth rate are rare. Bode well for CYMI.
- Large exposure to Japan
- Some exposure to Asia.
- Management announced that the first quarter of 1998 will see a
10-15% decrease ins ales
- Large amount of R and D expenses coming during the first quarter.
- Most brokerage firms lower earnings est. for 1998 for $1 plus to
around .45 -- I believe that this will change very soon and be
upgraded to around .65 - .70 for 1998 and over $1 for 1999.
- The shorts have been hammering this issue to death!! This is
going to change real soon!
- Many believe that due to Asia that semiconductor equipment growth
will range from 0 to 5% in 1998.
We have always favored technology and continue to recommend issues
that have been beaten down due to overly pessimistic emotions. CYMI,
like other semiconductor issues, have been slaughtered during the past
few months because most investors have no tolerance for long-term
investing! If a bump or detour appears in the road, the investor types
and most definitely the so-called money managers that have never seen
a bear market run for cover like lemmings. We really have to thank all
of these moron types, because in reality, they are allowing us to
steal cheap stocks, that in our opinion, offer huge upside potential
for patient investors that think 3 to 5 years instead of 3 to 5
We usually concentrate on value investing and seldom get involved
with growth stock investing. In the CYMI situation, we believe that we
are getting both scenarios at rock-bottom prices!
We believe that this issue has the potential to reach $50 within a
few years, unless, of course, someone buys them out. Strong
possibility! It is obvious that most tech stocks got oversold during
the Asian "meltdown" and CYMI was not an exception. Even
though we initially recommended CYMI at $16.56 and at present CYMI
trades at $20. This should not freak the investor for fear of paying
CYMI in our opinion is a great core holding and should be
accumulated at current levels. A position, of course, should be
purchased over a few months in order to take advantage of any sudden
All the negatives in our opinion are all temporary, offering us a
window of opportunity!
Our vision at S.A. Advisory is crystal clear. We will monitor CYMI
in our e-mail portfolio for percentage gain performance.
Broker: Greg Nelson at 1-800-269-9460; Corporate #619-451-7149 -
Leslie Cole (e-mail Lcole@cymer.com).