cs: Cymer Inc. (CYMI) OUTPERFORM [V] S. Kumar
CP: US$ 36.54 TP: US$ 40 CAP: US$ 1.1b
Share gains at Samsung help an otherwise mixed quarter, Raising Estimates and Target Price to $40 (from $38)
! Bottom line. CYMI reported a mixed quarter, with a bit more positives than negatives. We slightly bump up our 2010 and
2011 EPS estimates to $2.62 and $2.85, and our TP to $40 (old: $38), a 12x multiple of CY11 EPS, adjusted for net-cash.
We expect the stock could trend a bit weaker tomorrow given the expected miss in Q4, but share gains in immersion at
Samsung was a major takeaway from the call, and should limit near term downside. CYMI is a play on the higher growth
lithography market and over time should benefit from an increasing and relatively stable mix of installed base pulse
revenues (now over 60%), which should help multiples.
! Q3 beat, Q4 miss. Company reported Q3 rev/EPS of $141.7mm and 71c, above cons at $137mm and 64c. The beat was
driven by higher revenues (due to higher immersion unit shipments) and lower opex, but offset by lower gross margins. For
Q4 however, company guidance implied a mid-point rev/EPS of $142.5mm and 66c, below consensus at $151mm and 72c.
The miss was due to lower immersion and EUV units than our model, offset by higher shipments of KrF. Gross margins
were guided slightly up to 49%, as TCZ revenue recognition impacts GM, offset by better absorption.
! Positives. (i) Lower opex helps provide Q3 beat. Q3 opex was $38.3mm, well below guidance level of $42mm. Higher
revenues were offset by lower GMs, but the lower opex and slightly lower share count and tax rates were able to provide
the 11c EPS beat to Q3 earnings; (ii) Mix helping market share. Company has shipped more than 2x the number of
immersion shipments made by its competitor Gigaphoton in the last 2 quarters.
! We believe CYMI has benefited primarily from a mix shift to foundry and logic (Intel) over last 2 quarters. LRCX argued that
memory will decline from 57% of mix in 2010 to 49% in 2011 - if you believe this, CYMI should be able to grow share in
2011 as mix improves; (iii) Optimistic on memory share gains. Company believes that it has won some applications for
memory (we think it could be Samsung). Notably, these wins were not the reason for shipment share gains in Q2 and Q3,
so there is some relief and tailwind for share gains into 2011 for CYMI; (iv) TCZ potential. Company is seeing increased
pre-order activity in TCZ, however at this point we are only modeling 2 additional units in 2011.
! Negatives. (i) Q4 guidance below consensus. Although Q3 rev/EPS were above consensus, company guidance at midpoint
implies Q4 rev/EPS of $142.5mm/66c, below pre-call consensus at $151mm/$0.72; (ii) Gross margins light. Company
recognized revenues of more Onpulse units such that GMs declined 440bps q/q to 48.3%. Note that in Q2, GMs were
impacted by sale of a low margin (we est 15-20% GM) TCZ system, but Q2 GMs benefited from warranty benefits and
Onpulse. In Q3 however, Onpulse has impacted GM. In Q4, TCZ revenue recognition will once again impact GM (offset by
other factors though). EUV rev recognition could keep GM under pressure in 1H11; (iii) EUV revenue recognition pushed
out. Company has pushed out recognition of revenues from the first EUV tool into 1Q11 (from 4Q10). At a conference in
Japan this week, litho participants claimed that DPP lasers have currently a higher throughput than LPP lasers for EUV
(CYMI is developing LPP, and Ushio is developing DPP). Both lasers are currently capable of < 10 wafers/hour throughput,
and the target is 60 wafers/hour for the first generation ASML 3100 systems by mid-2012 and 120 wafers/hour for the
second generation ASML 3300 systems later on. CYMI believes that LPP has the best potential to scale throughput, and
that DPP will have difficulty scale to 60 wph throughput. This aspect needs to be monitored; (iv) Light source inventory.
Inventory of laser light sources at customer sites has increased from low 70 units to low 80 units in the last quarter; 80% of
these sources are immersion sources; (v) Pulse revenues. September month pulse revenues were down m/m - first time
this cycle, and company only guiding flat to slightly higher pulse revenues in Q4. |
