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THIRD AVENUE FUNDS'
MARTY WHITMAN ET AL.
(continued from preceding page)
OID: Versus 4 times peak earnings, I believe you said, in the case of Lam Research.
Whitman: That's right. As I recall, Lam Research's peak earnings on an undiluted basis were $4.92 per share. They did make an acquisition since then for stock. However, based on the raw numbers, that's what they were.
OlD: What else can you tell us about it?
Whitman: I think the issue for us is more qualitative.
Lie: Lam Research has a dominant position in the etch market - which is the process of removing material not required for a chip's design pattern. Also, as Marty alluded to earlier, Lam acquired OnTrak Systems. And along with that acquisition also came a solid position in the chemical planarization market.
OlD: Come again?
Lie: Chemical mechanical planarization (CMP) refers to the process in which wafers are polished so that they're flat enough to lay another pattern layer onto the wafer.
Jensen: It's a very expensive grinder essentially.
Lie:It's a big growth area. And Lam's market share in that area is growing. Plus, along with OnTrak Systems came Jim Bagley who had been vice chairman and COO of Applied Materials before joining OnTrak. So Lam Research also got someone with a vast amount of knowledge to run Lam. Thus, it has very good management, too.
OlD: Why does a company with all those virtues sell for only about 4-1/2 times trailing peak earnings? Something doesn't compute. What's the catch?
Whitman: No catch.
OlD: Are there any others you'd like to mention? Or if you like your entire portfolio, we'll just put your telephone number at the end of the feature...
Whitman: We really do like our entire portfolio. But besides those we've already mentioned, the ones we've been buying and have open orders for at today's prices include ADE Corp., AVX, Electroglas and GaSonics International. There are others we like qualitatively that don't make the cut quantitatively - i.e., in terms of price. But the ones I just mentioned make it qualitatively and price-wise.
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