CSFB has an input on CMOS today.
<<Polishing up a gem
• We are reinstating coverage of CMOS with a Neutral rating.
CSFB had been acting as a financial advisor to NPTT on its
merger with CMOS, which closed May 28. Our prior
Underperform rating was based in part on CMOS’ lack of a
volume product cycle, which we believe is being addressed with
the acquisition of NPTest’s Sapphire platform. Cycle
fundamentals show signs of weakening – although at a 25%
discount to its peer group, valuation provides some support.
• Diversified test footprint. CMOS product portfolio is stronger
than ever –Sapphire fills a significant need area for the
company, and allows CMOS to cut ties with the
underperforming Octet. CMOS’ strength has historically been
testing high volume, lower speed mixed signal devices.
Sapphire expands CMOS’ TAM into high end SOC and logic
markets, but can still scale down to test mid to lower speed
devices. We estimate that CMOS has increased its TAM by
$900 mm+ to $3.5 bb of an estimated $4.7 bb semi test market
in 2004.
• New estimates. The company is guiding for F3Q revenue and
EPS of $164-170 mm and $0.18 to $0.20; as a result of the deal
closing in late May, guidance includes only 2 mths of NPTT
revenues. Recent checks throughout the group though argue that
July was weaker than expected. As a result, we are setting our
estimates at the low end of the range $165 mm and $0.17 (street
$171 mm and $0.18). CMOS no longer provides order guidance.
For FY04 and FY05 we are estimating EPS of $0.30 and $1.00
(street $0.35 and $1.37, respectively). We expect NPTT to be
accretive immediately in F3Q04, helping to partially offset
worsening cycle fundamentals.
• Execution to help narrow the gap. Post merger, CMOS brings
a stronger product portfolio to market, and new IDM customers
should provide a steadying influence on the model. Against our
CY05 estimates CMOS is selling for 1.0x EV/Sales, 4.7x
EV/EBITDA, and 8.0x P/E – representing a 25-30% discount to
its peers, explained by cycle dynamics magnified by our belief
that CMOS needs to be more proactive addressing its expense
structure. Capitulation on the latter could help close the gap.
Our price target is $8.50, or 8.7x our CY05 EPS representing
8% upside from current levels.>> |
