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Technology Stocks : Semi Equipment Analysis

SOXX 301.15

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4:00 PM EST

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To: BMcV who wrote (17595)	8/4/2004 10:06:44 AM
From: BMcV	Read Replies (2) of 95656

When good news is bad news (CSFB): ASML (ASML.AS)Underperform [V ] Industry Weighting:Underweight J.Danjou CP:€ 11.87 TP:€ 12 CAP:€ 5.7b 44 20 7888 0887 ASML:Beware 2005 •Foundries upbeat tone reporting Q2 results raises the stakes: supply could become a significant issue by FY05 possibly leading to a sharper downturn than expected.With capacity increases gaining further momentum in H2 04 and FY05 at a time when a deceleration in demand growth is set to become more visible,it is becoming less and less difficult not to think about a visible over-capacity situation by FY05 leading to a pronounced downturn. •Current consensus expectations on FY05 lithography shipments and ASML earnings look more and more complacent.We calculate that the close to 675 litho.tools forecast for next year (+22%y/y)highlighted by ASML when reporting Q2 results would reflect a volume of capacity additions above the FY00 level.It is becoming very hard to believe:in fact,shipments could well be down next year as a result of a more pronounced over-capacity situation. •Were shipments to be down next year,we would expect ASML Eps to follow.Under the scenario recently highlighted by our US SCE team where capital equipment shipments are cut by up to 30%going into next year,we estimate that ASML EPS could decline to € 0.48 next year from our current € 0.60 EPS estimate for this year. •A bigger capitulation cannot be ruled out.ASML currently trades at about 20x our FY04 Eps,12.2x our current FY05 Eps but close to 25x our € 0.48 Eps under a down scenario.Maintained positive sentiment at foundries and prospects for a seasonal H2 might or might not lead to a technical rebound near term.We think however that most of the risk is on the other side:we wonder whether PE metrics such as 20x peak (i.e.FY04)or 25x the likely trough (i.e.FY05)could hold as a floor if next year is a down year.

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