Based on the semiconductor industry's push to make chips at 0.18 µm, BancBoston Robertson Stephens has given an investment upgrade to some firms in the capital equipment industry. "We believe the semiconductor capital equipment sector has hit bottom and will increasingly see technology buys from leading chip makers," said Sue Billat, a senior analyst with BancBoston. Billat upgraded ASM Lithography in Tempe, Ariz., which produces lithography steppers; KLA Tencor in Mountain View, Calif., which makes inspection equipment; and Teradyne Inc. in Boston, maker of test equipment. Their ratings change from "long-term attractive" to "buy." This may be good news, not only for these systems manufacturers, but also for the photonics companies that supply them with integral components. But sales and marketing executives are not holding their breath for an upturn. Billat agrees that the last quarter was something of a trough in bookings and cautions that the upturn will begin selectively. "Deep-ultraviolet lithography at 248 nm has shown greater ability to be extended than was previously thought," she said, explaining that fabricators who can extend their technology to 0.18, or even down to 0.13 µm, will have the greatest advantage in rebounding as the market begins to move. Copper, DRAM factors The switch from aluminum to copper chip circuitry also will spark some technology buys in the near term, Billat predicts. "All major chip companies are working on copper circuits," she said. Copper provides higher speed or lower power consumption than aluminum. Billat also cited the price stabilization in DRAM as a factor spurring renewed activity in the capital equipment market. Clark Fuhs, vice president and director of semiconductor manufacturing analysis at Dataquest in San Jose, Calif., agreed with the prediction. "Things have stopped going down. However, recovery will be much flatter. It could even stall toward the middle or end of next year," he said. "We have some indication that orders were stronger in October than they were in September." While the future may be somewhat brighter for technology buys, analysts point to low capacity utilization as an indicator that it will be some time before capacity buys come back to healthy levels. "We don't see capacity buys coming into the picture until the middle of 2000," Fuhs said.