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Technology Stocks : Cymer (CYMI) -- Ignore unavailable to you. Want to Upgrade?

To: Darryl Olson who wrote (23362)	10/26/1999 2:00:00 PM
From: S. Wallace Slough	Read Replies (1) \| Respond to of 25960

From MSDW: 1. MSDW reiterates Strong Buy and $45 target; represents 33 P/E multiple on new F2000 EPS estimate of $1.35; up from $1.30. 2. Cymer reported surprise EPS of $0.12, which exceeded estimate of $0.08 and First Call estimate of $0.07. 3. Faster than expected shift to higher ASP 6000 Series, bookings were $80.6m, up 54% sequentially from $52.2m; Book to Bill 1.39. 4. We now expect 6000 Series lasers to represent 80% of unit shipments in 2000, up from a 50% expectation 90 days ago. This has incrementally positive revenue and EPS implications for 2000. 5. Raising F4Q99 EPS to $0.24 from $0.23, expect consensus to rise close to our estimate. Consensus for F4Q99 was $0.19 prior to earnings release. 6. For F2000, we are raising our EPS estimate to $1.35 from $1.30 to reflect a rapid mix shift to 6000 Series lasers, which we highlighted in our last EPS estimate increase on Sept. 16 and was confirmed by the company yesterday. We expect consensus of $1.21 to rise towards our estimate. More: Cymer tracking to our thesis. Cyclical recovery in semiconducter industry. Accelerated demand for DUV systems, especially 0.18 & 0.15 scanners. Slow market share erosion with a dominant position at the leading edge. We expect Cymers market share to remain above 80% in 2000. Faster mix shift to 6000 series lasers, with higher ASP's. Overhead absorption and mix related margin expansion, which should drive positive earnings surprises and upward EPS estimate revisions. 6000 Transition is the Story. 90 days ago, Cymer expected 6000 series would represent 50%+ of shipments in F2000. Based on strengthening semi cycle and more new fab and fab expansion, demand from chipmakers for 0.18 and 0.15 systems has accelerated. Cymer has demonstrated capability of its 20 watt, 2000 khz lasers, and the market has responded. We expect 6000 series laser shipments to represent over 80% of shipments in 2000, up from expected 50% 90 days ago. Company booked more 6000 series than 5000 series for first time. Competitive position strong. Micron recently ordered about 5 systems with Lambda Physik lasers. Micron has set up Lamda as second source. Represents modest market share loss for Cymer. Cymer continues to dominate the excimer laser market. We view the laser market as similar to the microprocessor market. We view Cymer as similar to Intel, Komatsu as similar to AMD, and Lamda Physik as similar to Cyrix. As such, we expect Cymer to leverage the following to maintain an 80% plus market share through 2000: 1. larger cadre of laser scientists and engineers 2. proven track record of moving the market in high volume to its leading edge products faster than expected with high levels of reliability. 3. proven volume manufacturing and global service and support. 4. Improving cost of ownership profile, as evidenced by a lengtening warranty period on chamber life. This has been the key area of perceived competitive opportunity. Cymer continues to improve. The key competitive opportunity is now; attention on the part of Lamda Physik at SVGI; nepotism on the part of Japanese system suppliers for Komatsu; and the requirement by some chipmakers to have multiple suppliers of critical components in manufacturing. The latter is to ensure competitive technology advancement, and hopefully, competitive pricing. 5. Cymer consistently executes each new introduction of leading edge lasers in high volume with high reliability faster than either competitor has demonstrated the ability to do so. 6. Cymer believes KrF lasers will ultimately represent a 6,000 unit oportunity over time, and it has in excess of a 90% installed base market share to leverage. To date, about 900+ KrF tools have been installed at chipmakers. Financials Cymer reported F3Q99 revenues of $58.9m, exceeded our estimate of %56.8m. Cymer shipped 77 lasers in F3Q99, ans service spares, and upgrade revenues were 37% of sales at $21.8m. We forecasted sales of 90 lasers and service spares and upgrade revenues of $14m. Gross margin was 37.6%, slightly below our forecast of 38%. Higher % of service revenues and fewer units accounted for difference. Also, with 6000 ramp underway, early stage installation and warranty reserves are above average relative to mature tools in production. We expect gross margin to increase in F4Q99 as ratio of laser shipments to service, spares, and upgrade revenues fichens and overhead absorption gets better. In F1Q00, we expect installation and warranty reserves on 6000 lasers to decline to normal levels, which should drive further gross margin expansion. F3Q99 operating expense were 29.5% of sales, which was lower than our forecast of 31.7% of sales. Beter than expected revenues and tight SG&A expense control accounted for the difference. As reenues grow in upcoming quarters, we expect further operating leverage. For F2000, we increased our revenue forecast to $363m from $357m based on an improving product mix shift to 6000 series. We have been well ahead of consensus in modiling a strong year for Cymer in 2000. Therefore, we are not running our numbers up as fast a consensus at the current time. We do see potentially compelling upside to our estimates for 2000 though. Our unit forecast for F2000 remains 575 units, which is probably ahead of the companys expectations right now. However, business is consistently improving and we expect 2000 to be a big year for leading edge lithography. Our ASP assumption for F2000 is $513,000, which may prove to be light. We forecast Cymer to serve 82% of the laser market in 2000. In summary, we expect Cymers booking to be in the $80m range again in F4Q99, which should set the stage for further positive earnings surprises in C1H00. We also expect the company to continue to experience improving fundamentals as the chip and equipment cycles continue to gain momentum next year and increasingly difficult photolithography applications drive demand for Cymers product and support expertise. WOW!!! Talk about a positive report!!