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  • When will Intel strike back?

    Stocks will likely be flattish on reduced news (KLAM, AMAT, UTEK, INTC, ASML & Hermes). From a Wall St perspective, this year will likely be one of the quietest Semicons in a while as all three major players, AMAT, LRCX & KLAC have no scheduled investor events.

    We usually hear dueling versions of market share and different perspectives on the same semiconductor market that at least generate some interest- not so this year as we will hear the sounds of silence. We will hear from the small and mid cap companies but that in general will be somewhat less impactful on the sentiment in the industry as we are unlikely to hear anything earth shattering.

    Americas Cup - GO ORACLE! (pics)-semicon-west-2016-min.jpg

    KLAM prenuptial peace
    Both LRCX and KLAM are in their quiet period due to the impending merger (or hopes of a merger). Of course this is the calm of a duck on the surface with mad paddling below the surface as I am sure they are busy trying to get past regulatory hurdles, cut deals for remedies to get approval all the while keeping customers, investors and employees happy.

    One would imagine they have the answers to their second request from the DOJ lined up by now (we would hope...) and at least heard what regulators were after more directly.

    Although the company had initially hoped to get the deal done by the summer we could see things dragging out till the end of the year (using AMAT/TEL as a guide...)

    AMAT's not saying much either
    We assume that AMAT will have more to say at its analyst event in the fall. We will likely get a refreshed version of life without TEL and maybe some better idea how AMAT makes its numbers stand alone.

    Although the most recently reported quarter was very good, it was mainly due to the display business which is so volatile that it makes the semiconductor business look stable. All those orders for OLED tools for the Iphone 7 could be a one time event and we could see a drop off in business as gains in semis may not be enough to keep the momentum going. In any event, we won't be hearing from AMAT either.

    Small and Mid caps at the CEO summit
    We will be hearing from a number of small and mid cap companies at the CEO summit. The problem may be that we don't get as much interest from investors or maybe fewer investors as the draw of the big three is not there and some investors may not bother to show up.

    The CEO summit is one of the better, more efficient events but without the big three there will likely be less impact.

    Post Semicon fireworks? Barbarians at the gate
    While Semicon may be a bit boring this year we may see some interesting developments in the weeks after Semicon.

    Most notably a proxy vote , July 19th, at Ultratech (UTEK) in which a normally docile, sleepy, typically long only fund, Neuberger Berman is waging a pitched battle against UTEK over its ten year stake in the company. Neuberger has put up its own slate of directors after complaining about UTEK's less than stellar stock performance. The battle has turned into a very public showdown.

    The tides may be turning against Ultratech as recently both ISS (Institutional Shareholder Services) and Glass Lewis, the leading independent governance advocates have recommended voting against UTEK management and for a change in directors. These are two highly regarded firms that can usually swing votes one way or another.

    UTEK has responded with a flurry of positive press releases to counter this negative turn of events. While we have seen some low level activists in this industry this would be a highly unusual event if it comes to pass as we have not seen this type of investor ever go this negative and aggressive.

    Art Zafiropoulo, CEO of UTEK, is among the last of the original founders of the semi equipment industry in the US in the likes of Jim Morgan, Ken Levy, Alex Darbaloff & Jim Bagley....and the only one still at the helm...

    When will Intel strike back?
    Intel is currently going through a lot of changes from staff reductions both from RIFs as well as early retirement packages. This restructuring and focus on getting expenses down will likely keep the pressure on capex. Intel seems less focused on dominating technology and fab expertise and is more focused on costs and finding new markets other than fading PCs.

    We think this means that spending will remain muted, for at least the near term, through the end of the year. Its unclear when we can expect a strong resurgence in spending and we wouldn't hold our breath waiting for it.

    We see companies which were Intel centric try to get more diversified and many are having success in 3D NANd and other foundry efforts.

    We remain very positive on our view of XPoint memory technology and hope that Intel/Micron can ramp it as soon as possible as we think its one way out of the spiral.

    Further ASML & Hermes thoughts
    It seems many investors and industry analysts have missed the apparent huge conflict that ASML has put itself in through the planned acquisition of Hermes.

    ASML's most critical and important sub supplier is Zeiss, a privately held German company, which makes the ever so critical, and very expensive, lenses for their DUV scanners.

    Zeiss is also in the business of inspecting photomasks and is also in the scanning electron microscope business. This is in direct conflict with Hermes which makes SEM tools to inspect photo masks (just like Zeiss) as well as SEM tools to inspect wafers.

    So in summary...ASML has just bought its most critical subsupplier & Partner's (Zeiss) biggest and most successful competitor in the SEM business (Hermes)...talk about a conflict.....

    We can only imagine that the CEO of ASML had to talk to managemnt at Zeiss before the Hermes deal was announced. If this were not the case, and I was Zeiss, I would be pissed.

    If I were Zeiss I would certainly be extremely unhappy unless of course either ASML was compensating me or perhaps even buying me (or just the semiconductor division of Zeiss-- obviously the whole of Zeiss is too big to buy but ASML could swallow just the semiconductor division).

    It actually makes sense for ASML to buy the "Semiconductor Manufacturing Technology" division of Zeiss as they would be able to vertically integrate and make their own lenses and couple the Hermes SEM with the Zeiss SEM and truly blow away the competition in the SEM world.

    Zeiss is a private company and as such is under no obligation to look at selling an asset but ASML could make it worth their while with a big offer.

    Maybe Applied should make a bid for the SMT division of Zeiss, or at least the SEM part (especially while KLA's hands are tied during the Lam merger.....).

    Zeiss is in a tough spot...one of their biggest customers is now one of their biggest competitors....maybe they should sell to get out of the bind....

    If I were really cynical and paranoid I could suggest that part of the reason for the purchase of Hermes by ASML would be to get Electron Beam technology to build a direct write tool as a back up plan in case EUV fails. ( call it "Plan eBeam"- or "Plan B" for short...)

    After all, the original owner of ASML, Art Delprado (former CEO of ASMI) is now putting his money into a direct write E beam tool at his start up, Mapper Lithography.....maybe he saw the writing on the wafer (pun intended......)

    Meanwhile KLA struck out on both SEM inspection as well as Electron Beam mask writing tool called the REBL (without a cause...) going 0 for 2 in E Beam.......

    Another industry veteran, David Lam (founder of the company bearing his name...) is also working on E Beam writing through his MultiBeam start up.

    The stocks
    We see no real reason to run out and buy Semiconductor equipment stocks going into Semicon West as the news flow will be muted. The stocks seem to have fully recovered from the Brexit debacle (as they should have).

    Maybe we might start to get more interested towards the close of summer as the build up to the roll out of the Iphone 7 in September brings along with it an interest in the semi space again after a slow summer off.

    See you at Semicon!!!!