May 22, 1996
Lam Research (NASDAQ: LRCX)
Address : 4650 Cushing Way, Fremont, CA 94538
Phone : 510-659-0200
Closing Price, Feb 22, 1996: 47 1/4 (up 4)
Trade: Selling 100 shares
Back in late February when I added 100 shares of LRCX to the Borefolio, I noted that, as a NY Times story put it, "Lam is the dominant player in the boring but lucrative and growing business of making machines that make machines." Specifically, Lam Research is a global leader in the development, manufacture, and sales of equipment required for two critical stages in the production of semiconductors: deposition and etch.
At the time of my purchase, the semiconductor industry was beginning to show signs of recovering from nearly six months of declining stock prices and progressively gloomier forecasts. There were still plenty of bears afoot (Rick Whittington was perhaps the head bear), but analysts' forecasts still indicated healthy EPS growth of 18 to 20 percent between June 1996 and June 1997 for Lam.
Between February and May, LRCX dipped almost to a 52-week low in the low $30 range before scrabbling back up into the $40s, hitting $45 for a few moments only yesterday. It looked as though Lam might pull through yet this year.
Today, however, the picture for has changed. As noted last night, the World Semiconductor Trade Statistics project announced they had revised their estimate of global semiconductor sales growth for 1996 to 6.7%, down from their previous estimate of 26%.
In addition, the latest First Call data show that Lam's consensus EPS estimates for FY97 has been trimmed down to a slim $5.18. That would represent only a 10% annual gain in EPS -- not the kind of growth that propels share prices to new highs.
Lam Research is an outstanding company. But with earnings prospects for the coming year as bleak as the latest evidence indicates, I've decided that it makes sense to move the Borefolio's stake in LRCX elsewhere -- at least for now. Should new information at some later point indicate a somewhat brighter future for the chip industry, we could see this Lam back in the Boring corral again.
A newly-instituted policy for The Motley Fool permits me some latitude in timing my sale, so as not to be unnecessarily penalized by market maker shenanigans. I've decided, though, to make this sale under the old rules -- sort of a last hurrah. So 100 LRCX shares will move out of the Borefolio sometime during the day on Wednesday.
-- Greg Markus (MF Boring)