S A ADVISORY April 1998
New Buy Recommendation



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 models:

* 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.


  1. Revenues for 1997 ending December, 1997 . . . $203,647,000 $64,995,000 net income per share diluted .86
  2. 52-week stock range $14.375 .... $49.25
  3. Shares outstanding 30 million.
  4. Book value as of January 30,1998 .... $4.15-price to book-3.99
  5. Price to sale-2.4
  6. Price to Earnings = trailing 12 months-19.2X
  7. Cash -$132 million and $42 million (long term investment) - $174,000,000.00
  8. On or about January 29, 1998-CYMI announced $50 million share repurchase program.
  9. 997 net income up 300% on 213% revenue
  10. 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!
  11. 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%.
  12. At year-end backlog was $108,704,000.00
  13. Management controls 14%, large short position, recently upgraded by two brokerage firms (Morgan Stanley-bullish firm with clout).
  14. 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.
  15. 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.
  16. 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.
  17. Deep-UV is ranked as one of the fastest-growing sectors in the global lithography marketplace.
  18. Possible takeover candidate
  19. During 1996, the company increased its clean room manufacturing space to approximately 11,000 square feet, added twelve new test bays
  20. Vector Vest placed a buy recommendation CYMI - means something, but we are not sure what!
  21. On February 11, 1998, Motley Fool adds CYMI to "Stock Fools Love". In our opinion, they made a great choice.
  22. 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 think
  23. 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!
  24. Worldwide sales of semiconductors are expected to double by the year 2001, to $300 billion from $149 billion last year (according to Dataquest).
  25. 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 for CYMI!
  26. 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.

The negatives:

  1. Large exposure to Japan
  2. Some exposure to Asia.
  3. Management announced that the first quarter of 1998 will see a 10-15% decrease ins ales
  4. Large amount of R and D expenses coming during the first quarter.
  5. 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.
  6. The shorts have been hammering this issue to death!! This is going to change real soon!
  7. Many believe that due to Asia that semiconductor equipment growth will range from 0 to 5% in 1998.

Overall Opinion

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 minutes!

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 too much.

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 down drafts.

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).

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