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Technology Stocks : Novellus -- Ignore unavailable to you. Want to Upgrade?

To: Grandk who wrote (2597)	1/20/2000 12:11:00 AM
From: A. Edwards	Respond to of 3813

NOVELLUS REPORTS STRONG 4Q99, RECOVERY IN FULL SWING, RAISING ESTIMATES AND PRICE TARGET. Prudential Securities January 19, 2000 John W. Pitzer (650) 320-1633 Novellus reports very strong quarter. 4Q99 revenue and fully diluted EPS of $191.7 million and $0.27 were slightly ahead of our estimates of $190.0 million and $0.25, despite our upward revision after the positive pre-announcement on Dec 21. Street consensus EPS estimate was $0.26. Upside to our numbers was driven by higher than expected interest income equal to $0.02 EPS. Sequential revenue growth of 23.8% was broad-based with particular strength in Asia (Taiwan and Korea) and the US. Gross margin expansion resulted from increased revenues and higher absorption of fixed costs - 4Q99 gross margins were 55.6% up 160 basis point from 3Q99. Outlook into 1H00 remains solid. We believe that NVLS will grow record revenue, backlog, and EPS in 1Q00. We estimate that NVLS will sequentially grow revenue 33.8% in 1Q00 and a currently conservative 7.2% in 2Q00 as increased capacity buying as well as an increasing rate of adoption of copper takes holds in the market. We do note that while the SABLE tool is seeing volume orders and shipments, the Company's INOVA copper barrier/seed tool are not shipping to customers in production volumes. As a result of the strength, we are moving estimates up modestly. Given that estimates rose substantially after NVLS's pre-announcement in December, we are raising estimates modestly to reflect better revenue and some operating leverage. We are raising our FY00 revenue and EPS estimates to $1,141.5 million and $1.65 from $1,100 million and $1.48, and our FY01 estimates to $1,390.0 million and $2.10 from $1,301.6 million and $1.73, respectively. Copper interconnect market is beginning to accelerate. We have always stated our belief that adoption of copper technology would go through a double hump buying curve - an initial surge of buying from early adopters, then a lull period as proof of concept was achieved and finally a re-acceleration of orders for volume manufacturing. It now appears that Novellus has passed through phases one and two of the adoption curve and now sits at the cusp of the strong up-tick for production volume buying. The Company has done an excellent job with the Sabre Electrofill, the product tool of record in 9 of the top ten semiconductor companies - winning a large production order in 4Q99. The key is to further wins for INOVA (PVD barrier/seed), where evaluations are currently underway.