Here is an article sort of summarizing the present situation from Dow Jones. [Emphasis mine]
By Donna Fuscaldo
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Sure, Novellus Systems Inc. (NVLS) warned late Thursday. And, yes, Merrill Lynch & Co. downgraded its investment rating on the semiconductor equipment group Friday.
But that hasn't stopped investors from bidding up shares of some of the battered chip equipment stocks Friday.
Take Novellus for example. The company said a delay in two orders for equipment will make it impossible for it to hit its revenue target in the third quarter. As a result, Novellus is targeting revenue of $230 million in the quarter, down from $250 million.
The San Jose chip equipment maker also lowered its orders target to $220 million from $250 million, and cautioned that the number could fall to as low as $200 million.
The stock, however, didn't fall on the news. Novellus shares recently were up 51 cents, or 2.1%, to $24.80.
Meanwhile, Merrill Lynch analyst Brett Hodess reduced his near-term ratings on chip equipment companies Applied Materials Inc. (AMAT), KLA-Tencor Corp. (KLAC), Lam Research Corp. (LRCX) and Novellus to neutral from buy Friday. Merrill cited weakening orders for its downgrades.
Typically, a call like that would send the whole group into a tailspin. But not Friday. Like Novellus, Applied Materials shares gained, as they recently traded at $13.64, up 20 cents, or 1.5%. Shares of Lam and KLA-Tencor fell, but the declines were muted, at 2.1% and 1.5% respectively.
While no one will dispute that near-term business conditions for the chip equipment sector look grim, some analysts say that given all the capital expenditure cuts from chip makers and cautious comments out of both the companies and Wall Street, the bad news finally is priced into the stocks.
There has been a string of earnings warnings, and chip companies such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) have announced cuts in their capital spending, said Richard Tortoriello, an analyst at Standard & Poor's.
The indications for a while have been that the third quarter and perhaps the fourth will slow for equipment makers, he said. Investors have had a lot of time to digest the negative commentary coming out of the chip equipment industry.
Concerns that orders would slow surfaced in May, when Goldman Sachs reduced its rating on the group. Analysts from CIBC World Markets, Banc Of America Securities and U.S. Bancorp Piper Jaffray, among others, also sounded cautious
notes.
Fears of slowing orders heightened when chip makers, including Intel Corp. (INTC), Infineon Technologies AG (IFX), Motorola Inc. (MOT), Taiwan Semi, and United Microelectronics Corp. (UMC), cut their capital spending targets for the year. And Applied Materials, the largest chip equipment maker, confirmed the dire predicament when it said earlier this month that it expects orders in its fiscal fourth quarter to decline 5% to 15%.
Although Tortoriello said that a lack of visibility for a business improvement may prompt investors to take a cautious stance on the chip equipment sector, he said chip growth is actually in an upturn and that the economy, while a little shaky, is also improving.
Corporate profits likely will return in 2003, which means that information technology spending is likely to improve, said the analyst, adding that a corporate replacement of personal computers is also in the cards for next year. "For those reasons, we will see some return in order growth for equipment maker starting in early 2003," said Tortoriello. He added that the bad news is likely priced into the stocks unless conditions in the economy deteriorate.
Even Merrill's Hodess, who downgraded the sector Friday, isn't calling for further declines in the chip equipment group's stock prices. Instead he said the stocks will "likely tread water until signs of an order bottom emerge."
- By Donna Fuscaldo, Dow Jones Newswires; 201-938-5253; donna.fuscaldo@dowjones.com
It shouldn't take very many days to find out if their assessment of future semi-equips stock prices live up to their predictions.
Don |
