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Three analysts and top management from ten sector firms examine the Semiconductor Capital Equipment sector in this special 67-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info437.htm

TWST: Mark, how about you? What is your approach to the group?

Mr. Fitzgerald: I look at it from a macro viewpoint. The most important call in is picking inflection points in the cycle. History shows that the group moves together. There can be relative differences in performance among the different segments as Ed mentioned, but by far the most important call here is identifying the inflection points in the cycle, both at the top and the bottom. There is very little information that comes out of the capital equipment sector that gives you a heads-up on those turning points in the cycle. We’ve spent a lot of time looking at the chip companies and things like inventory, rates of change in growth in semiconductor demand, and end market applications.

TWST: Mark, how do you see the health of the fundamentals underlying the semiconductor equipment industry today? And how would you account for the difference between predicted demand and actual demand in 2000 and 2001?

Ms. Fitzgerald: If you look at it, the industry clearly has a lot of issues to work through over the next 12 months. Probably at the top of the list is the oversupply. We’re coming off of the biggest boom that the industry has ever had (in 2000), and we clearly overshot the mark in anticipating what demand would be going forward. So I see that a lot of semiconductor companies have utilization rates of anywhere from the mid-30s to the mid-50s at this point, and in order to get back to a healthy business, we really have to get those capacity utilization rates back up in the 70%, 80% range. We think that 2002 will go toward filling out these factories, or will make some headway in filling out these factories, but we don’t really see the health of the semiconductor business getting back on track to the extent that they’re more aggressively buying capital equipment for capacity additions until about 2003 at this point. We think a lot of damage has been done, and it’s certainly reflected in the stocks to a large extent. But there is a long workout that is ahead of us here, and we think it’s going to take a minimum of the next 12 months.

TWST: Mark, do you have any further comments on consolidation?

Mr. Fitzgerald: Yes. There are a couple of names that immediately come to mind. Lam Research (Nasdaq:LRCX) is a mid-cap company that has to make a decision as to what they’re going to do longer term. It’s a company that is successful in just one product segment. We think it will need to diversify or merge with another company if it is to remain a factor in the market.

TWST: Mark, sum up your thinking for us in a brief message to investors.

Mr. Fitzgerald: I think what investors have to do is take a step back and recognize that the 10-year bull run that we’ve had in semiconductor capital equipment, in terms of growth rates, has probably slowed. The recovery we’re looking forward to is going to be more modest than what we’ve seen in the last 10 years. So we’re attentive to two issues — the slope of the recovery and the stock valuation that is appropriate for that growth.

This special issue includes:

1) Semiconductor Capital Equipment - In an in-depth (12,900 words) Analyst Roundtable, Mark Fitzgerald, Managing Director and Senior Research Analyst in the Technology Group at Banc of America Securities, Robert Maire, Analyst at Bear, Stearns & Co., Edward C. White, Jr., Managing Director and Semiconductor Equipment Analyst in the Equity Research department at Lehman Brothers, examine the outlook for the sector including investor inflection, growth drivers and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at eighteen sector firms asked market insiders about the ability of management teams to create shareholder value.

3) CEO and Sponsored interviews (average 2,500 words). Top management of ten sector firms examine the outlook for their firm and the sector.