Don here is a link to another interesting BCA report
bcapub.com
Also CSFB's outlook for Q2 earnings and Q3 guidance
Semi Cap Equipment - 2Q Earnings Preview; 3Q Guidance Outlook
(1) 2Q Earnings Preview - We anticipate few surprises when companies begin to announce C2Q earnings over the next two weeks (our detailed company previews begin on page 4). Most companies will comfortably hit their guidance for revenue, shipments, EPS and orders - though we suspect C2Q earnings are not as important as C3Q outlook (see C2Q and C3Q summary sheets on pages 2&3). Most vulnerable in C2Q were lithography companies, and companies with significant exposure to Samsung - most of whom had very difficult 1Q sequential compares. Most likely to provide upside include: test and packaging companies as units have been strong and KLAC as June represents the Company’s seasonally strong quarter, though this may be offset by a desire to protect order growth for September, the seasonally weak quarter.
(2) 3Q Guidance Outlook - As we have stated several times in the past, we anticipate most companies guiding 3Q sequential order growth in a range of flat to up 10% versus our industry estimate of 8.4% q/q order growth. In-line with our more bullish stance on unit plays, we expect back-end names to provide sequential bookings growth guidance in the low to mid teens. Revenue growth across the board will be more modest - flat to up 5% - we would hope for better as most companies can fulfill turns business and if capacity were truly tight expedited shipments should be expected. Further cost cutting should allow companies to grow earnings modestly on flat revenue - our estimates for 3Q are relatively safe.
(3) Estimates for 2003 and 2004. We feel comfortable with our estimates for 2003 - which are currently 6.2% below street consensus. While we are not looking for strong revenue growth in 2H03, further cost cutting (and one-time charges) provide a foundation to support estimates over the next 6 months. We are concerned with 2004 estimates. In general the market is betting that technology stocks will grow into rich valuations. It is always possible that we are under-estimating growth in 2004, but we are concerned that current street consensus represents a best case scenario - our 2004 estimates are 10% below street consensus and still show average revenue growth of 24.6% and avg. incremental margin of 57.4% versus an historic avg. of 34.5%. We believe that 2004 estimates could have 20% downside at a minimum.
(4) What’s important for the stocks. Given the recent market move, we are finding it more difficult assessing what stocks need to see out of 2Q earnings to move higher, and what if anything might be perceived as negative. We suspect that 2Q will largely represent a pass for stocks as earnings reports and guidance should not be overly controversial. As a result, it is probably important to monitor chip reports for incremental trading patterns. Although there are clearly many swing factor projects for the 2H, in our opinion when monitoring chip fundamentals it boils down to three things: (1) Intel, (2) Samsung and (3) TSMC. If 3Q guidance disappoints for any of those three, we would anticipate a fairly sharp retrenchment in SCE stocks.
(5) Valuations. As stated earlier, the critical bet that the market is making is whether or not stocks can grow into rich valuations - it’s got to be the leverage. We are worried that our companies are not poised to provide the historically strong leverage off of the bottom due to less aggressive growth in key end markets as well as negative supply dynamics at 300 mm. Stocks are currently trading at 20.1 times what we believe are optimistic peak earnings based upon revenue returning to 80-85% of 2000 peak and margins to 85-90% of the last peak. According to HOLT, our stocks are currently embedding a CFROI of 7.8% on average versus historical average of 9.5% and our estimate for 5.7% in the coming cycle. Stocks are only cheap if one can construct a more robust recovery than the 1998-2000 cycle - we find it hard to make that argument. |
