MSDW report part 2
Incremental demand weakness
-Due to incremental capital spending cuts and new fab pushouts, demand for semiconductor capital equipment has continued to fade over the past 60 days. This is especially true in Japan and includes leading-edge photolithography equipment. As Nikon and Canon work off excess inventory and ASM Lithography (ASMLF-$18, rated Outperform)adjusts to general weakness in its customer base, near- and medium-terM demand for Cymer's lasers has weakened.
-Based on increental demand weakness, we lowered our F1998 and F1998 (SIC) unit, revenue, and EPS estimates. However, based on expectations for an industry recovery in the second half on 1999, we are initiating a F2000 EPS estimate.
-Based on Cymer's pre-announcement/restructuring, we are lowering our F3Q98 revenue forecast to $45.3 million from $51.8 million. Our new revenue forecast is based on 75 units with a $450,000 average selling price (ASP), down from 88 units previously, but with a $435,000 ASP. As we indicated in our last two reports, Cymer is experiencing a faster-than-expected product mix transition to its 5010 Series lasers from its 5000 Series. This is a competitive positive for Cymer based on its strategy to lead the market to each new generation of lasers. Because Cymer's 5010 Series lasers have higher ASPs and better gross margins, we are maintaining our F3Q98 EPS estimate of $0.05 even though we are lowering our unit shipment forecast.
-Based on expectations for lower unit shipments in F4Q98, we are lowering our unit estimate to 65 units from 84, but we are raIsing our ASP assumption to $465,000 from $450,000. Assuming a gross margin hit due to lower production rates, our EPS estimate for F4Q98 is now $0.00, down from $.05.
-Due to the forecast changes in F3Q98 and F4Q98, our F1998 revenue estimate is now $190.0 million, down from $206.3 previously, and our new unit forecast is 341 systems, down from 375 previously. Commensurately, our F1998 EPS estimate is now $.19, down from $.24 previously.
-Unit shipents declined in each of the past three quarters, and we expect units to decline in each of the next two quarters. However, based on expectations for a 2H99 sequential ramp in new equipment demand, we belive Cymer can grow sequentially in F2Q99 and build momentum into 2000. We also expect Cymer to continue to experience a product ix shift to its 5010 Series lasers and we also expect Orion Series lasers to pick up steam as 1999 unfolds.
-Given the above scenario, we are now forecasting Cymer to ship 300 lasers in 1999, down from 375 previously. As a result, we now expect Cymer's F1999 revenue to be $200 million, down from $278 million previously.
For F2000, our initial unit forecast is 465m which is about equal with Cymer's previous peak in 1997 of 460 units. However, based on a 25% higher ASP forecast and four times higher service revenues, we forecast the company's F2000 revenues to be $300,000 million, up from $203.6 million in F1997. We expect margin expansion as unit volume ramps and our EPS estimate is $1.00.
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