Day 1 SSB Tech Conf. Steady Recovery In Progress
Salomon Smith Barney
Thursday, September 09, 1999
--SUMMARY:----Semiconductor Equipment
Day 1 of the SSB Tech. conference indicates good steady equipment recovery
in progress driven by technology buys, existing shell expansion and very
select new fab construction.
Still no signs of active pull-ins of new fab expansions/constructions.
Company by company analysis is necessary to pick out the growth segments.
Highlight - CMOS and ESIO commentary clearly more positive than the
consensus expectations.
--OPINION:------------------------------------------------------------------
Credence Systems (CMOS-$45 1/2, 2H, Price Target - $47)
Key Highlights
1. Good upside possibilities to the consensus sales estimates of $70M in
4Q99, $185M in FY99, and $324M in FY00
2. Gross margins not expected to reach previous peak levels in the high
50's due to lower margins in Kalos and Valstar. Peak gross margins
should be in the mid 50's, however, lower SG&A expenses should
completely offset the effect leading to the standard 20% operating
margin model
3. Goal in mixed signal is to reach 20% market share versus 16% currently
and hold the #2 market share position in ATE.
4. Growth will be driven equally by new accounts and the trend towards
outsourcing to subcontractors.
5. The key limiter to revenues/earnings is not bookings but how fast can
the company ramp its shipments.
Presentation Details
1. Company is continuing to work on diversifying customer base
2. Quartet sales are expected to double in 4Q99 from 3Q99 levels (low
double digits)
3. Opmaxx and Fluence are expected to reach quarterly revenues of $3-4
million during early 2000.
4. The current test upturn is so strong that even the older SC series is
recording strong sales and expected to reach 20 units per quarter in
4Q99.
5. Ramp in 4Q99 will determine sales upsides to quarter and fiscal 2000.
6. Orders outlook very strong in 4Q99 driven by Asia (subcontractors) and
flash.
7. Valstar should account for 10% of total sales next year
Electro Scientific Industries (ESIO, $40 1/2, Rating - 1H, Price Target -
$50)
Key Highlights
1. Company is seeing solid underlying strength in the planning horizons
of its customers which translates into better order visibility for ESI.
This is a significant change from the prior view about a "steady
gradual upturn". Several of ESI's businesses are unit volume driven
and not PC centric, which explains the improving visibility.
2. Company expects to operate at model of mid 50's GM, 12-14% R&D, and
17-20% OM by end of FY00.
3. Body language points to excellent degree of comfort with $0.35
estimate for 1Q00 (August) and consensus estimates of $1.92 in FY00
Presentation Details
1. ESI's strategy is to focus on businesses where it has a strong
position and develop new businesses based upon its strengths.
2. ASPs for memory yield improvement have improved over the last several
years, which illustrates the value that the machine provides to its
customers
3. ESI held an 82% market share of the $69M memory repair market in 1998
4. In electronic components, ESI held a 65% share of the $75M market in
1998. The main challenge here is to demonstrate to captives the enabling
capabilities the tool provides over internally developed systems
5. Circuit fine-tuning is a mature business which ESI has a 66% share of
the $44M market in 1998
6. Vision products represent a substantial opportunity given the low 16%
share of the $120M market in 1998. We should see improvement here with
the acquisition of MicroVision. A long sales cycle will prevent near term
market share gains. Electroglas is a win for next generation equipment
7. Electronic packaging also represents a good opportunity given ESI's
small 8% share of the $600M market in 1998. ESI is well positioned with
its laser drill due to the move to smaller vias. ESI has a dominant
market share for vias smaller than 6 mils.
VECO (VECO- $35.62, 2H, Price Target - $44)
Key Highlights
1. 2H 99 shipments on track with guidance ($118-$120 million). Bookings
should reach shipment levels in 2H99 and allow for parity book-to-bill.
2. Veeco's customers need to achieve improved financial results before
releasing orders.
3. Even on flattish revenues in 2H1999, operating margins could improve
due to gross margin improvements, however, we are not making any changes
to our gross margin estimates of 47.3% in 3Q99 and 47.5% in 4Q99.
4. Revenues from semiconductor sales should improve from $25 million in
1999 to $50 million in 2000 due to 1) flip chip metrology, 2) AFM high
resolution use for semiconductors, and 3) use of Vx profiler in CMP
applications
Presentation Details
1. Next generation spin valve will require 12-15 layers versus 6-8 layers
currently
2. Next generation layers will also require less than 10-angstrom
thickness control versus the current requirements of 25-30 angstrom.
3. Veeco's new cluster tool will consist of 6 target PVD, 6 target IBD,
IB oxidation, and UHV.
4. The company expects to launch the new product (ASPs - $5 million) in
late 2000/2001 for 40-50 Gb/sq. in. densities.
5. Current generation products (ASPs - $2.5 million) do not offer UHV and
IB oxidation capability and are not scalable.
6. Even though Veeco's process equipment division will probably only see
technology buys (however, metrology sales should continue to increase
due to yield issues), the preceding discussion about new process
equipment will continue to ensure a flat to steadily up process
equipment revenue stream.
ATMI (ATMI - $36 1/4, Rating - 3H, Price Target - $22)
Key Highlights
1. 30% year-over-year growth forecasted with 5% sequential quarterly
growth - upsides possible.
2. Materials segment is performing well but fab construction will have to
come back in a major way for a big kick in the Technologies segment.
Presentation Details
1. Strategy to become "one-stop" supplier of "differentiated
proprietary" semiconductor front-end specialty materials.
2. CVD is a $300 million opportunity wherein ATMI is the #2 worldwide
supplier
3. Ion implant is a $200M opportunity wherein ATMI is the #1 supplier due
to the success of SDS
4. SDS can store 10x more gas than conventional systems
5. Etch is a $100M market where ATMI has little penetration and represent
an incremental opportunity
6. PVD is a $300M market, which ATMI does not participate in and is
working hard to enter
7. CMP is a $100M market, which ATMI is just entering with the ACSI
acquisition
8. Photolithography is a $1.4B market which ATMI is just entering
9. Target gross margins are above 60%
10. Company is looking to reduce SG&A as a percentage of sales through
sales leverage and eliminating duplicative costs.
PRI Automation (PRIA- $37 13/16, Rating - 2H, Price Target - $36)
Key Highlights
1. Breakeven expected in 1Q00 (Dec)
2. Still expect $40-50M in orders for September quarter
3. No change in guidance, comfortable with consensus estimate of ($0.18)
for Sept. qtr.
4. However, entire body language points to good upsides.
5. What is remarkable is that in spite of the record semiconductor
strength, the company is not seeing a major pull in of the 9-11 fabs on
its planning horizon. Is the industry becoming less cyclical? We
believe that the $1.5 billion sticker shock, the experience of
1995-1999 upturns/downturns and the imminent 300 mm transition may
explain the reticence with respect to new fab announcements.
Presentation Details
1. Revenue growth will be equally divided between new fabs and existing
fab expansions
2. Still experiencing strong growth in 200mm fabs. Company expects a
steady stream of older generation 200 mm and 150-mm fab upgrades.
3. Order visibility has improved to 2 quarters, which represents an
improvement over visibility 3 months ago
4. Won 5 out of 8 orders competed for in 1999
5. Japanese competitors won 1 order each
6. ILC Planner and Scheduler should exit beta from TSMC/LSI Logic by
early 2000
7. Japanese are undercutting prices to compete and no major change yet in
their strategy.
8. 300mm fabs should represent a $100M opportunity, equally divided $25M
between interbay, intrabay, tool automation, and software.
ASYT (3H, Price Target-$23, Price - $32.19)
Key Highlights
1. Comfortable with mid $30M revenues and consensus est. of $0.01 for
2Q00 (Sept)
2. Company expects 20% plus growth in sales over next several quarters
Presentation Details
1. Asyst strategy is focused toward providing solutions by integrating
five areas: 1) isolation, 2) material management, 3) robotics, 4)
transport and 5) software
2. Growth is expected to be driven by new 200mm fabs, fab upgrades, and
200mm expansions in the near term.
3. Company expects 95% of 300mm fabs to adopt isolation/automation
technology. However, we note that 70%-80% of the new 200 mm fab
expansions adopt SMIF already.
4. Asyst believes there is a $24M fab opportunity for its products
consisting of $15M for I/O robotics, $5M for SMIFs, $2M for Auto ID, and
$2M for software
5. No revenues are expected for PAT for 18 months.
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