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Technology Stocks : Semi Equipment Analysis

SOXX 299.81

+2.7%

Dec 19 4:00 PM EST

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To: auriculatus who wrote (22868)	4/19/2005 11:50:54 AM
From: Donald Wennerstrom	of 95616

Here is what one brokerage/analyst concern has to say about NVLS. This is just out from CSFB. <<Margins story – an emerging endemic issue? We do believe some of the margin issues at NVLS are endemic to the industry. We believe that SCE companies have offset pricing pressures over the last 3 years through improvements in cost reduction and supply chain management. With few easy low hanging fruit left to pluck, we believe increasing price pressures and raw material commodity cost inflation could impact gross margins over the next several quarters. Note that street consensus estimates for front-end stocks still call for 2H sequential EPS growth of 32% H/H and ’06 growth of 42% y/y – versus our expectation that ’06 will decline 10-15% y/y. Estimates and valuation. We are revising our FY05 rev/EPS from $1.30bb and 76c to $1.30bb and 70c; street consensus was $1.35bb and 96c prior to the call. We are initiating 2006 estimates at $1.25bb (down ~2.7% y/y) and $0.75; street consensus is at $1.53bb and $1.32. The stock is trading at 1.7x P/B, versus prior trough of ~1.4x, well below current peer group average of ~2.5x; though at ~2.3x tangible book, stock is more inline with its peers. Margin performance could pressure the stock somewhat, but we continue to believe NVLS offers the most compelling risk/reward story in our universe and an aggressive way for investors looking for leverage to our space.>>

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