This is the summary input from CSFB on Day 2 of SEMICON West.
<<SEMICON Day 2 Update:
Day 2 update. We attended investor events for TEL, BRKS, and KLIC – and additionally met with lithography, process and test companies on day 2 of SEMICON West.
Top 3 takeaways from day 2:
(1) Own quality in uncertain times – companies with product differentiation/complexity and solid execution (ASML, TEL) were clearly in better position to provide some visibility beyond June and were cautiously upbeat. Contrast this against back end names – relatively shorter lead-time equipment and less strategic/technology spending driven. Both KLIC and CMOS were relatively more cautious on the environment. While sustainability of the peak remains hotly debated – we believe it is best to play companies in the former bucket – such as LRCX, ACLS and CYMI.
(2) One-sided NAND debate from companies – while acknowledging large concentration of memory business – few if any companies have given any indications of NAND slowing down – in fact the opposite could be true. ASML intimated a bias for NAND pulling in timeframes for shrinks/production on its immersion tools – while checks with other equip vendors at the show concur. Amongst back end vendors those with memory exposure seem to have the most confidence in the environment.
(3) Less new product focus – there was a noticeable de-emphasis on new products by companies we met with today (CMOS w/ its D-40 tester was the exception), and throughout the show. Largely this is a reflection of a continued marginalization of the Semicon show as a bona fide customer/business driven event.
SCE implications. Recent NAND spot price declines may have some investors concerned – NAND prices are down ~75% from a price level that enabled audio MP3 players (Nov’05). Last year, for ~$120 you could buy ~2GB of NAND, today you can buy almost ~8GB. Samsung’s earnings tonight will be the next key catalyst for the group. Expect markets to remain choppy as investors weigh the impact of incremental positive datapoints on near term order-flow versus concerns on where we are in the order cycle; on the latter for what its worth, we think 2Q was the order peak for some companies, and 3Q will be for most others. We would emphasize longer-term oriented investors use market volatility and weakness to accumulate high QUALITY names – companies that have superior long term growth potential, improved market position and operational execution cycle to cycle – such as LRCX (growth, market share, valuation) and CYMI (growth, market share). Although ACLS miss-executed in 2005 (lost market share), it still remains our favorite pick on the smaller cap names, given turnaround prospects for the story with the Optima product cycle and its cheap valuation. |
