--Japanese capital budgets revealed yesterday
-- Positive news as expected -- increases up 50%, ahead of our up 30%
estimate
--Supports our view of a 2H00 surge in industry bookings (making a 2Q
deceleration of bookings a buying opportunity)
--Benefits all companies...but we believe Lam Research has the most growth
potential
--OPINION:------------------------------------------------------------------
JAPAN TO SPEND 50% MORE. The Nikkei Shimbun reported Japanese capital
spending increases yesterday afternoon. They reported the following
details (using a 1.05 yen/dollar exchange rate):
Hitachi +40% to $1.9B
Fujitsu +80% to $1.5B
NEC +34% to $1.9B
Matsushita +50% to $950M
Mitsubishi +75% to $950M
WELL OF AHEAD OF EXPECTATIONS. While Toshiba's numbers are absent, in
aggregate, these five companies were up 50%, well in excess of our
expected increase of 30%. We anticipate that Toshiba's spending will be
up by similar levels. We believe this will push Japanese aggregate capita
l spending to over $10B, or 20% of worldwide spending. These
better-than-expected levels also push our worldwide capital spending
budget growth in 2000 to over 55%.
Salomon Smith Barney
Worldwide Capital Spending Estimates
1998 1999 2000E
US $11,924 $11,994 $18,184
Japan $6,014 $6,891 $10,476
Europe $2,828 $3,337 $4,772
Korea $2,123 $3,000 $5,900
Taiwan $5,288 $7,566 $13,206
ROW $1,747 $2,150 $3,750
$29,925 $34,938 $56,288
Source: Salomon Smith Barney
We believe much of this spending will be focused on system LSI
(system-on-a-chip logic) and flash memory (biased towards NAND-type
flash). From a technology standpoint, we believe the logic focus will
incorporate copper production at two companies (providing relative
strength for metalization equipment) as well as early 300mm spending (for
Hitachi).
SKEWED TOWARD 2H00. The strong increase in Japanese spending supports our
view that 2H00 bookings will show a surge relative to 2Q00. The Japanese
budgets are for the 12-month period ending March 2001, naturally skewing
spending to 2H of calendar 2000. While we believe bookings momentum
(3-month over 12-month moving average of bookings) will slow at some
point in 2Q00 (representing a bottom for the stocks), our expectation of
abookings surge in 2H00 will move momentum upwards in 2H00.
WHO BENEFITS? We generally expect the Japanese capital spending increase
to benefit most US equipment vendors. However, on a relative basis, we
believe Lam Research has the most to gain (albeit from a low base in
Japan). We detail specifics for our companies under coverage:
LAM RESEARCH: TO MORE THAN DOUBLE JAPANESE REVENUES IN 2000. After weak
performance in Japan throughout the downturn, Lam has significantly
reversed course such that we now expect Lam's revenues from Japan to
more than double in 2000, to over $180M. Evidence is already in for this
growth: Lam's 2Q00(Mar) revenues grew 70% sequentially to $49M, with
bookings growing 42% sequentially to $64M. At this run rate, we believe
Lam's Japanese revenues will likely exceed our current estimate by $60M
or more.
Lam's strength is derived from particularly strong growth in its oxide
etch business (both Exelan and 9100), with more moderate growth in
poly-etch (where it has the market share lead) and metal-etch (where the
Company still lags). Note that Lam has not previously fared well in
oxide-etch due to the strength of domestic player Tokyo Electron.
Beyond etch, Lam has also penetrated the market with its Teres CMP
system, where, we believe, initial shipments are being made. |
