More from Morgan Stanley Dean Witter's semiconductor equipment report:
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. . . Based on recent conversations with equipment companies, barring unexpected late June push-outs, most equipment companies expect to meet or come close to C2Q98 EPS estimates. However, because we were expecting equipment industry revenues to be flat in C3Q98 and up slightly in C4Q98, which is unlikely given new capital spending cuts, we expect to lower EPS estimates across the board in July.
-- In our view, the company's most likely to feel the most hurt from incremental capital spending cuts are capacity-related equipment suppliers. We continue to expect leading-edge photolithography suppliers and especially photomask suppliers to be more resilient to the industry downturn than the broader-base of equipment suppliers.
-- We expect deep UV photolithography system sales to represent about 7.5 - 8.0% of global semiconductor capital spending in 1998, up from approximately 4% in 1997. Our assumptions are 313 DUV system shipments in 1997 and 425 - 460 in 1998, with ASPs of $5.2 million in 1997 and $5.8 million in 1998. Our capital spending assumptions are $40.5 billion in 1997 and $32.4 billion in 1998.
-- Suppliers of leading-edge deep-UV photolithography systems (ASM Lithography), photomask generation equipment (Etec Systems), and photomasks (none currently under coverage) should all have positive growth in a year (1998) with a 20% capital spending decline. Therefore, we expect downward EPS adjustments, for leading lithography-related equipment and mask suppliers to be far less severe than those for capacity-related equipment suppliers. In Etec's case, there may not be a need to cut estimates. We believe Etec has recorded a positive book-to-bill ratio through each quarter of the downturn, and we expect bookings for Etec's photomask generation systems to accelerate in late 1998.
. . . But a Potential Third Quarter Inflection Point in The Semiconductor Industry Should Stabilize Equipment Stocks or Push Them Up
-- The sharp decline in equipment stocks over the past month probably discounted much of the expected EPS estimate cuts in July. Similar to equipment stock action last January, following severe stock price declines in C4Q97, we expect equipment stocks to stabilize in July as earnings estimates are cut and the bad news is placed on the table.
-- Semiconductor capital equipment stocks are typically flat or trend up when the semiconductor industry is increasing sequentially and/or ezperiences improving year-over-year growth. We expect the semiconductor industry to experience a seasonal inflection point in the middle of the third quarter, which should be a stabilizing or potentially positive event for equipment stocks. Therefore, we are maintaining our ratings.
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[Rest of report talks about yen/dollar rates and cautions any deterioration could cause recovery to be slower than presently expected.] |
