Helix Technology, a cold play on semiconductor equipment Message Board

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Technology Stocks : Helix Technology, a cold play on semiconductor equipment

HELX 35.15

+0.1%

Nov 4 4:00 PM EST

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From: mopgcw	6/15/2005 3:27:48 AM
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GS US Semi Equipment ? Foundry orders unlikely to save the day in H2?05 Our team in Asia downgraded TSMC on a slower than market consensus ramp in utilization rates, supporting our view that foundry orders to the equipment suppliers are unlikely to increase meaningfully in H2?05. Further, we believe that DRAM orders are already beginning to weaken and will continue to worsen in H2?05. We expect declining DRAM orders coupled with an unlikely significant increase in foundry orders to drive another sequential order decline in CQ3. We believe that the Street has recently gotten ahead of itself in anticipating a significant increase in foundry orders driving an H2?05 order ramp, as evidenced by still high H2?05 and 2006 Street EPS estimates. We therefore expect the stocks to at least trade back toward the low end of this cycle?s trading range as the Street capitulates on the fundamental outlook. No change to our Cautious coverage view. FOUNDRY ORDERS ARE NOT LIKELY TO INCREASE SIGNIFICANTLY IN H2'05. Our team in Asia downgraded TSMC on Wednesday citing a slower than market consensus ramp in utilization rates, supporting our view that foundry orders are unlikely to increase meaningfully in H2'05. As we have indicated in the past, during the last cycle the foundries waited until utilization rates increased to approximately 95% before placing significant rounds of new orders. While we believe that foundry utilization rates will improve over the coming quarters, we expect utilization will remain too low to dictate significant increases in new capacity and we therefore believe that it will take several more quarters before utilization rates are at high enough levels for the foundries to begin to place meaningful new orders. Our team in Asia estimates that 12-inch foundry utilization rates should be relatively healthy remaining around the 90% level, while 8-inch foundry utilization rates are estimated to reach only 86% by Q4'06. We would note that it is possible that the foundries increase their order rates slightly from current very low levels. That said, we believe that DRAM orders are already beginning to weaken as per recent commentary from several equipment companies. We expect DRAM orders to continue to weaken in H2'05 driven by excess supply in the DRAM segment and the industry ceasing to move more DRAM capacity over to NAND capacity where prices are declining significantly. We don't believe that foundry orders will increase enough to offset the significant expected decline in DRAM orders in H2'05. We therefore expect overall semi equipment orders to decline sequentially in CQ3. THE STREET HAS NOT YET CAPITULATED ON THE LIKELIHOOD OF ANOTHER SEQUENTIAL ORDER DECLINE IN CQ3, AS EVIDENCED BY STILL HIGH H2'05 AND 2006 STREET EPS ESTIMATES. We believe that the Street has recently gotten ahead of itself in expecting a meaningful increase in foundry orders to the equipment suppliers. We also believe that the Street has not yet capitulated on the likelihood of another sequential overall order decline in CQ3 (driven by declining DRAM orders that won't likely be offset by significant increases in foundry orders), as evidenced by still high Street H2'05 and 2006 EPS estimates despite estimate cuts in recent weeks. Please see table 1 below. Table 1. Street EPS estimates too high. Street CQ2'05 EPS est. GS CQ2'05 EPS est. Street CQ3'05 EPS est. GS CQ3'05 EPS est. Street CQ4'05 EPS est. GS CQ4'05 EPS est. AMAT $0.14 $0.13 $0.15 $0.10 $0.18 $0.09 KLAC $0.48 $0.47 $0.46 $0.38 $0.48 $0.29 LRCX $0.44 $0.43 $0.42 $0.33 $0.44 $0.25 NVLS $0.21 $0.22 $0.22 $0.17 $0.25 $0.16 TER -$0.21 -$0.23 -$0.08 -$0.10 $0.01 $0.01 Street CY'05 EPS est. GS CY'05 EPS est. Street CY'06 EPS est. GS CY'06 EPS est. AMAT $0.65 $0.50 $1.04 $0.40 KLAC $2.03 $1.75 $2.16 $1.15 LRCX $1.75 $1.45 $2.34 $1.25 NVLS $0.91 $0.77 $1.24 $0.55 TER -$0.49 -$0.55 $0.35 $0.00 Source: Goldman Sachs Research estimates, Firstcall. EXPECT THE STOCKS TO AT THE VERY LEAST TRADE TO THE LOW END OF THEIR TRADING RANGE THIS CYCLE. Given that Street expectations do not call for continued sequential declines in quarterly order rates which we expect will occur, we believe that the semi equipment stocks will at the very least trade to the low end of this cycle's trading range if/when we are right that the Street will need to capitulate on another quarter of deteriorating fundamentals. I, Jim Covello, hereby certify that all of the views expressed in this report accurately reflect my

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