Analyst issues 'sell' order for TEL
Mark LaPedus
EE Times
(12/14/2005 1:31 PM EST)
SAN JOSE, Calif. — A possible capacity glut in 2006 and other factors have prompted investment banking firm Japaninvest KK to downgrade and issue a “sell” order for Japanese semiconductor-equipment giant Tokyo Electron Ltd. (TEL).
In a report issued this week, Japaninvest (Tokyo) said that TEL’s stock price in Japan has jumped by 24 percent over the last two months. On Wednesday (Dec. 14), TEL, the world’s second largest IC-equipment maker, next to Applied Materials Inc., saw its stock fall 2.6 percent to 7,140 yen ($61.03) in Japan.
But the recent run-up in the stock reflects the positive perception for Japanese chip-equipment makers, strong demand for flash memories and an increase LCD outlook, said David Motozo Rubenstein, an analyst with Japaninvest.
“Our main concern is that the recent sharp rise in the stock price fails to reflect the risk of overcapacity next year,” he said. “Furthermore, its profit outlook and earnings growth track record are worse than its peers. TEL has high exposure to domestic chip makers, which are weaker than the foreign competitors. In addition, LCD equipment margins are below average.”
There are several issues for TEL (Tokyo). Worldwide semiconductor capacity is projected to increase by 20 percent in 2006, which could outpace overall IC unit demand, he said.
On a compound annual growth basis, TEL’s operating profit has been less than 1 percent, according to the report. In contrast, two fab-tool makers, Applied Materials Inc. and Tokyo Seimitsu Ltd., have more than double their operating profit since 1996, according to the report.
And TEL’s exposure to LCD equipment is relatively small at about 15 percent of its total sales, according to the report. Citing a jump in its flat-panel display equipment business, TEL last month said that its sales and profits were up for the first six months of its fiscal year.
The company reported sales of 333.1 billion yen ($2.8 billion) for the first half of its fiscal year, up 18.9 percent from the like period a year ago. TEL posted a profit of 23.9 billion yen ($204 million) in the period, up from 1.2 billion yen ($10.8 million) a year ago.
On a quarterly basis, the company posted sales of 173.1 billion yen ($1.5 billion), up 8.2 percent from the previous period. It posted a profit of 10.7 billion yen ($91 million), down 18.9 percent from the previous period.
TEL’s semiconductor-production equipment (SPE) orders were 132 billion yen ($1.1 billion), flat year-over-year but up 20 percent sequentially. In Q3, TEL projects that SPE orders will hit 143 billion yen ($1.2 billion).
Japaninvest projects that TEL’s SPE orders will hit 147 billion yen ($1.25 billion) in Q3, “but expect a decline in subsequent quarters,” according to the report. “About 30 percent of TEL’s SPE shipments are to domestic chip makers, although Japan accounts for only about 20 percent of total global production. We believe that investment in Japan will lag behind Asia, the U.S., and other regions.”
For fiscal 2006, TEL’s sales are projected to reach 660 billion yen ($5.6 billion), up 4 percent from fiscal 2005, according to the report. Net profit is projected to hit 43.6 billion yen ($372.8 million) in fiscal 2006, down 29 percent from fiscal 2005.
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