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Technology Stocks : Semi Equipment Analysis

SOXX 361.13

+0.2%

Jan 29 4:00 PM EST

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To: Donald Wennerstrom who wrote (15160)	5/14/2004 3:45:41 PM
From: Donald Wennerstrom	Read Replies (2) of 95806

Here is an "update" on CSFB's review of the upcoming quarterly report by AMAT next Tuesday. <<Setting hard compares Expect upside to F2Q (Apr). AMAT will report F2Q04 (Apr) earnings on May 18, post the close of market; conference call at 4:30PM EST, 877-356-9175. We believe there is upside to our rev. and EPS estimates of $1.88bb and $0.18 to at least $2.0bb (up 29% q/q) and $0.21, versus guidance of $1.87bb and $0.17 to $0.19, street consensus is $1.89bb and $0.19. We are estimating gross new orders of $1.69bb (up 31.3% q/q) versus guidance of up 30%; and gross margins of 45.5% (versus 43.5% in Jan implying inc. GM of 55.4%). F3Q (July) guidance could disappoint. We are currently estimating July revenue and EPS of $2.1bb and $0.22 and believe the company will guide orders up 5%-10% in July to ~$1.77bb-$1.86bb; street consensus is between 5-15%. AMAT is the best proxy for improvements in supply chain efficiencies – its average lead times are still 4-6 months versus over 3 quarters in the last cycle, in spite of shipment levels that have doubled from trough levels. We are modeling B:B of 1.1 in July versus ~1.17 in April – July will mark the first decline in quarterly B:B for AMAT since the beginning of this cycle. 200mm versus 300mm. Recent order growth (up 100% from cycle trough in 3Q01) in the industry has been driven by a surge in 200mm orders (200mm was ~55% of the order book for wafer processing equipment companies (not including process control), versus ~40% in 1H03). Our bottom-up order model (see SCE weekly May 10) is currently pointing to a decline in 200mm orders in Sep, which should drive overall orders down 5- 15% in Sep. AMAT’s market share at 200mm is not much higher than at 300mm, but AMAT has had particularly strong exposure to product segments, geographies and customers who placed a bulk of the 200mm orders. We estimate WW 200mm orders in 2Q04 will be over 3x 2Q03 levels –decline in 200mm could set up difficult H/H compares for AMAT. Valuation. The stock is trading at 21.4x and 29.8x our CY04 and CY05 EPS estimates of $0.91 and $0.65 respectively; street estimates are at $0.95 and $1.19. Our universe of stocks is trading at 23.0x and 30.4x CY04 and CY05 estimates respectively; but at 15.4x street estimates for CY05. We believe street CY05 estimates may be too optimistic for the group, while there is upside bias to our CY05 estimates. AMAT’s order guidance will likely not inspire investor confidence; we believe stocks are stuck in a trading range until we get more data points on strength of end demand, which usually begins to occur in July.>>

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