Both AMAT and LRCX receive good words from CSFB today.
<<We are upgrading our sector weight on Semiconductor Capital Equipment from a Neutral to an Outperform. We are also upgrading AMAT from a Neutral to an Outperform and raising CY07 rev/EPS from $8.90bb and $1.03 to $9.85bb and $1.20, consensus is at $9.72bb and $1.10, and also increasing our price target from $18 to $20, representing an inline with peer-group EV/EBITDA multiple of 9.5x. We are maintaining our Outperform rating and $49 PT on LRCX; we think LRCX stock screens extremely attractively now – LRCX has solid leverage to all Taiwan DRAM companies; and in addition, valuations offer substantial upside on the stock. Note that we are
restricted on KLAC.
Memory is stronger than you think: Raising 2007 capex estimates. Post our trip to Taiwan, we are revising up our 2007 capex estimate from up 2.7% to up 6.7% y/y. We now have sufficient datapoints on near term visibility that is supportive of our memory thesis. Recall that we have consistently argued that the memory capex cycle has growth
legs into 2007 – we think this will play out as expected. We now think memory capex which represents nearly 50% of total capex, will be up ~10% y/y in 2007. In a low to mid
single digit semi growth environment in 2007, we expect non-memory capex to remain flattish in 2007. We note there may be upside to both memory/non-memory capex estimates should semi-growth rates improve in 2007. Memory capex strength is due to positive secular trends in supply and demand. In particular, we think the 200mm to 300mm conversion for memory has more legs in 2007. Although we are concerned on NAND, and expect NAND capex to decline 25-30% y/y next year, we think DRAM capex can be up over 50% and thus completely offset any NAND declines, so that total memory capex increases next year. In addition, given the technological changes and competition between memory companies will force the pace on the transition to 300mm. We think the chip companies’ current strategy of increasing capex is the logical result of the game theory and strategic aspects of capital planning by memory chip companies – and semi-cap, and in particular AMAT & LRCX are the best ways to play this trend.>> |
