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Electroglas: Are The Chips Down Or Up

Inside Wall Street


One person's discard is another's ace in the hole. That's how some big investors feel about Electroglas, a division jettisoned by General Signal through a public offering on July 1. A number of pros who scooped up shares at the initial offering of 16 are convinced they have come upon a bargain.

True enough, the stock hit 28 by late September, but early profit-takers drove it down, and it has since slipped to 20. "Not to worry," says money manager Arnold Schmeidler, president of A.R. Schmeidler & Co., a New York investment firm. He's sure the company is one of the most attractive and undervalued players in the booming semiconductor industry, and he feels confident the stock will double in just a year.

MARKET LEADER. Electroglas doesn't make semiconductor chips. It builds and services test equipment used in the manufacture of semiconductors. Electroglas is the largest producer of automatic wafer-probing equipment, which companies such as Intel, Motorola, IBM, Apple Computer, and Hewlett-Packard use in testing their chips and computers.

The company dominates the North American market, with more than a 72% share. Worldwide, however, Japan's Tokyo Electron Ltd. is No.1, with Electroglas controlling only 37% of the combined European and Asian markets.

Schmeidler says much of the demand for prober equipment will come from the 70 megafabrication plants that the big semiconductor companies plan to construct through the end of the century. Electroglas, he adds, is also benefiting from the public's increasing fascination with personal computers, wireless communications, and multi-media technology.

Also high on Electroglas is Ed White, an analyst at Lehman Brothers. The stock, he notes, has one of the lowest price-earnings ratios in the semiconductor equipment group, selling at about 13 times next year's projected earnings.

Money manager Schmeidler notes that third-quarter results have started to show Electroglas' growth potential. Earnings for the period jumped to 44 from 14 a year ago. He sees earnings leaping to $1.60 next year from 1993's estimated $1.35. Electroglas earned 65 in 1992.

With the industry's recent switch from the six-inch to the eight-inch semiconductor wafer, speedier and more complex probers will become necessary to ensure high-yield wafer production, says Schmeidler. That means that the larger wafers will require even more tests. So Electroglas is in the catbird seat, he says, because "you can't make a microprocessor without a prober." GENE G. MARCIAL

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