Cautious note from Prudential on Semi-equip sector:
1. Although the current business fundamentals for the front-end semiconductor
equipment manufacturers remain robust and customers are clamoring for
delivery, recent data points about weakening demand of PCs, cellular phones,
set top boxes can no longer be ignored. In addition, macro-shocks caused by
sky-high creasing oil prices and a weaker Euro could precipitate further
demand weakening.
2. Our thesis has been that the front-end equipment manufacturers could see
re-acceleration in their business starting with late December quarter or early
1H01 driven by the capital spending of DRAM manufacturers, the first wave of
300-mm manufacturing line orders from semiconductor manufacturers and the
start of copper manufacturing orders. We have been anticipating strong capital
spending by DRAM manufacturers, since they have been absent to date. Early
signs still point to the resolve of semiconductor DRAM manufacturers to
continue their capital spending. However, if the current demand weakness
extends to a traditionally strong fourth quarter and to the seasonally weaker
first quarter, we believe the risks for the equipment order pushout could
become real.
3. Although our strong buy rated stocks continue to trade at highly attractive
multiples compared to their peers in the technology industry, semiconductor
equipment stocks are likely to remain highly volatile in the near term until
we have better clarity on the semiconductor end market demand. If this
scenario for the order pushout materializes, we could see further downward
pressure on these stocks. We still believe that capital spending by DRAM
manufacturers, 300-mm spending and copper spending are essential and are
likely to materialize at a latter date if demand softening materializes.
4. Given the heightened risks, we would advise investors to remain on the
sidelines, in the near term, until we have greater clarity regarding PC and
DRAM demand. |
