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THIRD AVENUE FUNDS'
MARTY WHITMAN ET AL.
(continued from preceding page)
OID: Who's the market share leader today?
Jensen: It depends on how you segment the market. But the overall leader is probably ASM Lithography - which is a Dutch company.
OID: And how likely is it that Silicon Valley Group eventually captures share leadership in that area?
Jensen: That's very hard to say. That business is at an interesting crossroads because competing consortiums are discussing the standards for the next generation tool. And Silicon Valley Group and Intel are in one camp. However, IBM is one of the members of the other group And it's not clear which standard is going to prevail.
I don't think its Silicon Valley Group's intent to go out and kill Nikon and Canon. I believe that they just hope their standard prevails and that they're able to build a good product and get their fair share of sales.
OID: Their fair share being...
Jensen: Today, that segment probably has revenues of between $250 and $300 million. And they'd like to scale it up to have revenues of $1 billion in the next few years. They think it could be a $1 billion business in a few years.
OID: What do you think?
Jensen: I think those goals may be a little optimistic. But I don't think they're off the wall. I think those figures provide an indication of the potential that's there. In effect, it's not a zero sum game because that pie is likely to grow at a very healthy clip over the next several years.
[Editor's note: If SVGI were able to achieve incremental revenue of $500 million, that would be equivalent to approximately $15 per share for each of its 33-odd million shares outstanding. On its face, at least, that doesn't sound too shabby for an $11 stock - especially one with $4.50± per share of net cash which has sold for more than $49 per share.
Jensen: One reason why its earnings have looked so bad, by the way, is that they've been adding lots of capacity in anticipation of future demand. And until it materializes, that additional capacity will be a drag on their results.
OID: But you expect it to be a plus over the long-term...
Jensen: That's right. By the way, we've also tried to diversify by process segment to avoid getting overloaded in any single process. We don't want to be too concentrated in resist processing, lithography, probing or anything else.
OID: Primarily to avoid being overly concentrated in a process that becomes technologically obsolete.
Jensen: Exactly.
OID: You mentioned that Silicon Valley Group was the technology leader, but not the market share leader. Are any of the other companies you mentioned leaders in technology but not market share or vice versa?
Jensen: I believe FSI International has the leading technology in a couple of its segments, whereas it's probably only #3 or #4 in terms of market share. That's the situation in both their surface conditioning and their microlithography segments.
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