TO ALL:GOOD NEWS FROM NOVELLUS -SMART MONEY
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MARKET INSIDER
Good News From Novellus
AFTER REPORTING better-than-expected fourth-quarter earnings Monday
morning, Novellus Systems (NVLS) should get a lift when stock markets
open Tuesday. The semiconductor-equipment maker reported net income of
64 cents a share when analysts surveyed by First Call expected 63 cents.
Net sales were $163 million, a 56% gain over the year-ago period.
That hardly sounds like a report from a company whose stock price has
been slashed from a high of 66 3/8 last October to a close of 31 1/4 on
Friday. The problem is that Novellus, one of our "Ten Stocks for the
Year 2000 and Beyond," reaps 25% of its sales from the Pacific Rim, and
investors have been petrified that the Asia crisis will slow the market
for its products.
Monday's report should help ease some of those fears. During the last
week of the fourth quarter, Novellus did have to delay some Korean
shipments when customers failed to get letters of credit guaranteeing
payment. But so far, that's the biggest damage the company has seen. In
a conference call with analysts following the earnings announcement,
chief executive Richard Hill said he anticipates flat growth in the
first quarter of '98 and thinks it could stretch into the second
quarter. For the year, however, the company predicts revenue growth of
15%. "While we are cautious for the next quarter or two," Hill said, "we
feel the longer-term prospects for the business are still very good."
How will that sit with Wall Street? That's a wild card given that most
analysts and portfolio managers were taking the day off to celebrate
Martin Luther King Jr.'s birthday. But David Wu, an analyst with ABN
AMRO Chicago, is pleased. "If you tell me the worst case for Novellus is
that the second quarter could be flat, I'd say the Asian Flu isn't that
bad," Wu says. "This is about as good as you are likely to see from a
company like this. Given Korea, the performance is very good."
That doesn't mean Wu expects the stock price to spike upwards. He warns
that it will be hard to get a clear picture of Asia's effects on any
sector for another couple of months. "It all depends on Taiwan and Korea
in the next 90 days," says Wu. "If those things don't look worse than
they do now, the stock will go up."
The report delivered plenty of signs that bode well for the future.
Sales in Europe and America are booming, and analysts should be
encouraged by the state of Novellus's order book. At year-end, the
company had a record backlog of $224 million, an increase of 43% from a
year ago. Although about 40% of that is from Asia and Japan, "We did go
through the numbers with a fine-tooth comb and, to the best of our
knowledge, it is solid," says Hill. In 1997, total order bookings jumped
21% from the previous year. The book-to-bill ratio was better than one
to one, with about 40% of bookings from the U.S. Major customers Intel (
INTC), Motorola (MOT) and Advanced Micro Devices (AMD), meanwhile, have
all announced capital spending figures ahead of what Novellus was
forecasting.
During the conference call, analysts grilled management on margins,
which have narrowed since last year's purchase of the thin-film division
Varian Associates (VAR). The company's gross margin currently sits at
54.9%, but Hill insisted that he can increase that number to 56% by
1999.
-- By Amey Stone
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