Mr. Ricchiuti: My universe can be segmented into three separate areas. One is imaging and display technologies, and this includes companies that have exposure to flat panel displays and other types of display technologies ' from the standpoint of capital equipment as well as in the actual marketing of flat panels display to end users. The latter typically specialize in marketing customized flat panel displays for specific applications. The other segment of my universe relates to capital equipment for manufacturing semiconductors and electronic components as well as industrial and consumer goods. Finally, the third group of names in my universe includes companies with security-related exposure ' either defense-related exposure or some form of corporate or government security.
TWST: Let's start with the imaging and flat panel area. What has
gone on there over the past year or so?
Mr. Ricchiuti: What we're seeing is a pretty rapid transition to
flat panel displays in the desktop computer market, where users
are replacing the traditional CRT (cathode ray tube) displays
with flat panel displays. We've seen prices come down sharply,
and there's clearly an accelerating migration to flat panel
displays in both the corporate and consumer markets. In fact,
FPDs have been one of the few bright spots in the technology
market over the past year. Even though PC sales have been
sluggish, consumers have been buying FPDs as stand-alone
replacements for their existing CRTs. From an OEM standpoint, PC
manufacturers have been bundling PCs with flat panels as a means
of stimulating demand. In addition to the desktop computer
monitor market, which FPDs have only begun to penetrate, we
believe there are significant growth opportunities for FPD TVs
over the next several years. We believe there will be a similar
transition to LCD-TVs, as prices come down and consumers replace
the older CRT technology. According to market research forecasts,
the LCD-TV market is expected to grow in excess of 80% a year
over the next five years. Initially, demand is likely to come
from the smaller-sized LCD-TVs in the coming year. Likewise,
recent declines in prices for plasma TVs should help drive sales
at the high end of the market. Over time, we believe larger
screen LCDs will emerge as formidable competition to plasma TVs
in the large hang-on-the-wall segment of the TV market. How that
relates to the companies that I follow is that several of the
companies in our imaging and display group manufacture capital
equipment that's used by the major producers of flat panel
displays in Asia. This includes companies in Japan like Sharp
(SHCAY), which is making a significant investment in a so-called
6G fab, which will manufacture large-size LCD TVs, and in Korea,
which includes the two largest suppliers of TFT LCDs, LG.Philips
and Samsung, as well as in Taiwan, where a number of players in
the market are making significant investments in 5G capacity,
with plans on the drawing board to construct plants capable of
producing even larger pieces of glass to address the large-screen
TV market. Capital equipment companies that we believe are well
situated to benefit from the current investment cycle in the FPD
industry include Applied Films (AFCO), Orbotech (ORBK) and Photon
Dynamics (PHTN). Over the past year, the rapidly growing demand
for FPD has resulted in high utilization rates at the fabs that
make these panels in Asia. The combination of high utilization
rates, continued strong demand for desktop FPDs and the emerging
LCD-TV market is driving the investment cycle by the TFT LCD
manufacturers. As a result, many of these equipment companies
have seen a marked increase in orders in recent quarters, which
should set the stage for accelerating earnings over the next two
years.
Tickers included in this excerpt: AFCO, CGNX, ESIO, FLIR, INVN, ORBK, PHTN, PLNR, SHCAY, XLTC
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