Semiconductor Equipment . . . Semiconductor equipment sales are expected to rise 4 percent in 2003 over sales of $19.8 billion a year ago, according to a survey of companies conducted by Semiconductor Equipment and Materials International. Leading the way is an anticipated 30 percent growth in assembly and packaging equipment, and an expected growth of 18 percent in chip testing equipment. Wafer processing is projected to remain flat. Growth is expected to increase to 24 percent in 2004 and 18 percent in 2005, and contract slightly in 2006.
The Wall Street Journal article suggests customer cautiousness in ordering new equipment to expand capacity might be coming to an end soon. The article points to one piece of evidence being factories filling up with Taiwan Semi recently reporting its factories operating at 86% capacity in the second quarter, up from 67% in the first quarter. In addition, market research firm Gartner estimates plant utilization at 81% for the entire industry. However, Intel plans to spend between $3.5 billion and $3.9 billion in 2003, which is down as much as 25% from last year. The article also suggests excess optimism is possible with last year being used as an example due to TSMC and other co's placing orders in Spring 2002 only to cancel them by Semicon due chip demand being illusory.
Applied Materials will set tone for SemiCon with 7/14 analyst meeting. Expect slowly building confidence in mid term outlook. Despite speculation, we expect no layoffs beyond those announced. KLA Tencor, Lam Research, Brooks Automation analyst meetings on 7/15. Most products have been pre-announced. Cautious optimism from LRCX, KLAC, a bit more cautious BRKS (Near-Term). Teradyne, Novellus, Lam Research, KLA Tencor, ancelis should meet June Quarter expectations. Expect Septmber Quarter bookings guidance +10%. None suggests a big 2nd half 2003 turn but tightening utilization, strong unit growth, improving foundries, and a slew of 300mm projects sets up strong 2004 rebound. Larger cap names now trading at 30-35x 2004E. Stocks may pause but expect further upside as recovery anticipation turns to confirmation. Analysts are more confident about modest order improvement in 2nd half. Risk/reward still positive. Advise buying on any dips/weakness.
Applied Materials will focus on new etch. CMP, and ECP tools at SemiCon show. Rising utilization (now 86%) at TSMC is a bullish sign especially for AMAT. It is still early, but July Quarter on track (flat guidance). Analysts speculatively expect October bookings up around 10%.
KLA Tencor reports 4th quarter on 7/24, expect their analyst meeting (7/15) to be largely product focused. Given that June is historically KLAC‘s strongest Quarter, anticipate bookings will exceed conservative flat guidance. Estimate $335-345 million (+6-10% Quarter/Quarter). Best positioned name in the group with the only issue is valuation.
Novellus will be the first major front-end vendor to report 2nd quarter on 7/21. Analysts are looking for $0.05 on $238 million (flat). Despite its mid-Q reaffirmation of $188M in orders (- 23% Quarter/Quarter), we expect the company to show upside - est. orders above $200 million. Continue to believe that NVLS is one of the key names to own in the space.
Semiconductors . . . Smith Barney downgraded Altera and Xilinx to "in-line" from "outperform," citing valuation concerns. Altera is a dime better at $19.23 and Xilinx is 19 cents higher at $27.81. Analyst Clark Westmont said Altera is trading near or above pre-2000 levels on a relative and absolute basis and Altera is trading in the top quartile of its 10-year historical valuation range. He has a $15 price target for Altera and cut his Xilinx price target to $28 from $30.
Merrill Lynch raised its rating on Intel to buy from a neutral rating and put a $29 price target on the stock on expectations for improvement in gross margins. "Better average selling prices should continue to flow from the shift towards mobile machines, where Intel sees better pricing, and a shift towards higher-priced Pentium M processors within the mobile segment," Merrill told clients. "We also think Intel has been able to price less aggressively in its desktop processor business as AMD has continued to struggle."
Smith Barney Europe is calling cyclical bottom in European Semis. They are upgrading the European Semiconductor industry (to Marketweight from Underweight). On a stock specific basis, firm raising ASML to Outperform from In Line (target to Eur15 from Eur6.30), ST Micro target goes to US$22 from US$18. Maintaining Outperform rating and Eur11.5 target on Infineon.
Broadcom introduced a new Fast Ethernet switch.
Pixelworks chip selected for Samsung's latest LCD television.
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