Catalysts for Upcoming Week (from CSFB)
Expect 4Q02 in-line, with flat to positive bias for bookings. We expect most companies in SCE to meet guidance
for 4Q – supporting valuations through the earnings period. Further, SCE is approaching a bookings inflection, with our bottoms up model showing 5-10% q/q order growth in 1Q03 off of a low bottom. Areas of relative strength in 1Q will include IBM ($84.19, Neutral, TP $87), MU ($10.05, Neutral, TP $10), Nanya (2408.TW, NT $23, Neutral, TP NT$26), INTC, and TXN ($16, Neutral, TP $18).
INTC capex should be positive relative to street expectations. We see potential for INTC ($16.68, Neutral, TP
$16) to guide 2003 capex between $4.0 to $4.5bn when it reports results after the close next Tuesday. Although
$4.0-$4.5bn is still down from $4.7bn in 2002, this would be higher than our estimate for $4 billion in 2003 and
street range between $3.5 and $4.2 billion. Our bottom’s up model for INTC currently shows $3.5 to $4.5 billion
depending on which projects move ahead in 2003, although we now believe $4 bb is probably more a worse case scenario for guidance.
We warn investors however that this feels like 2002 – with bookings strength driven by easy sequential booking compares and timing of projects benefiting 1Q03 orders. Stocks have been and will continue to try to react to the order inflection but we believe that any rally in 1Q will be short lived due to (1) low short interest in the group and (2) higher inventory in 1Q03 post a weak holiday season, which will probably lead to a normal seasonal downtick for most semi companies. We believe we still lack fundamental drivers to support a capacity cycle - inventory cycle is neutral to negative, sell through for electronics was not as robust as people had hoped, and valuations are stretched. We would recommend taking profits on strength in stocks.
For exposure, stick to ASP leverage, addressable markets, and units over capacity. We continue to focus on three themes - ASP leverage – CYMI ($36.56, Outperform, TP $45), increasing addressable markets – NVLS ($32.70, Outperform, TP $40), and units over capacity TER ($14.91, Outperform, TP $19). In addition, KLAC ($39.38, Neutral, TP $35) should have relatively strong bookings momentum in the current environment with potential for bookings up 10% q/q in December and March; we would caution valuation is still stretched. We also would profile ASML ($8.81, Neutral, TP $8) selling at 10x peak 2005 earnings valuations, particularly after its 2H02 earnings report. |
