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Technology Stocks : Lam Research (LRCX, NASDAQ): To the Insiders -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (3900)	1/21/2000 12:21:00 PM
From: Jong Hyun Yoo	Read Replies (2) \| Respond to of 5867

Words from SSB on LRCX: Read it and enjoy... --SUMMARY:--Lam Research Corporation--Semiconductor Equipment Very strong 2Q00 with earnings of $0.98 (SSB-$0.72, FC-$0.72), and bkgs of $350 million above our $330-$340 million estimate. Outlook for high single digit low double digit order growth in 3Q00. One of the best guidance in the equipment sector. Revising FY00 to $3.90 from $2.97 and FY01 to $4.90 from $3.46. New price target is $191, or 35 times cal. 01 earnings estimate of $5.46. More importantly, we still see 200-300 basis points upsides in gross margins, which offers us additional protection. Reiterate 1H and Top Pick 2000 rating. 01/20/00 Lam Research Corporation (LRCX $136.37,1-H,Tgt $191.00) Milind --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 06/99 EPS $(0.70)A $(0.64)A $(0.38)A $0.28A $(1.42)A Previous 06/00 EPS $0.58A $0.72E $0.80E $0.85E $2.97E Current 06/00 EPS $0.58A $0.98A $1.08E $1.22E $3.90E Previous 06/01 EPS $N/A $N/A $N/A $N/A $3.46E Current 06/01 EPS $1.08E $1.17E $1.26E $1.38E $4.90E Previous 06/02 EPS $N/A $N/A $N/A $N/A $4.31E Current 06/02 EPS $N/A $N/A $N/A $N/A $5.75E Footnotes: 01/20/00 Lam Research Corporation (LRCX $136.37,1-H,Tgt $191.00) Milind --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior:No Change Price (01/19/2000)....:$136.37 P/E Ratio 06/00.....:35.0x Target Price..:$191.00 Prior:98.00 P/E Ratio 06/01.....:27.8x Proj.5yr EPS Grth...:25.0% Return on Eqty 99...:N/A% Book Value/Shr(99)..:12.89 LT Debt-to-Capital(a)40.1% Dividend............:$N/A Revenue (00)........:N/Amil Yield...............:N/A% Shares Outstanding..:38.4mil Convertible.........:Yes Mkt. Capitalization.:5236.6mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: 01/20/00 Lam Research Corporation (LRCX $136.37,1-H,Tgt $191.00) --OPINION:------------------------------------------------------------------ Investment Thesis: For the fifth quarter in a row, Lam Research delivered solid bookings/revenue/earnings upsides driven by the industry pick-up, market share gains and superb operational execution. We are raising our fiscal 2000 earnings estimate from $2.97 to $3.90, our fiscal 2001 estimate from $3.46 to $4.90, and our price target from $99 to $191, or 35 times calendar 2001 earnings estimate of $5.46. While Lam Research trades at a similar 28-30 times multiple on calendar 2001 earnings as its peer group, we believe that there are three reasons why the stock has more upside potential (which is why we rate it as our Top Pick during 2000) - 1) Appreciable gross margin upsides - We are modeling Lam Research to reach gross margins of 46.3% during FY01 which opens up the possibility of 200-300 basis point upside potential, and 2) New product cycle in CMP - We believe that with Applied Materials holding CMP market share of 70%, there is clear need for a strong competitor and the revolutionary advantages of the linear polisher open up significant room for Lam to rapidly ascend from 0% to 30% market share and 3) Better end market exposure - For the last 4 years, we have been surprised by the CMP market growth (for example during 1999 we estimate that the CMP market grew 60%-80% versus the industry growth rate of 20%), and we believe that there are at least 1-2 years of accelerated growth in store for the CMP market. With the Teres ready to ramp, Lam is positioning itself in a solid end-market. Net-net, we are reiterating our 1H (Buy, High Risk) and Top Pick - 2000 rating and believe that it should be the best performing stock in our coverage universe. Key Points: 1. Orders were well distributed across all geographical regions and not skewed towards Taiwan as many other equipment companies, which implies that bookings growth should be more sustainable. We look for high single digit to low double digit order growth in the March quarter. 2. Teres is ramping nicely and the company should be able to achieve volume 5-10 system orders as early as the June quarter. A 20% booked market share in 2000 looks very achievable. This should more than offset the decline in the CMP cleaner revenue stream. 3. Lam is revising its etch market growth forecast to 40% in 2000. This is consistent with our estimate, with some room for upside. 4. Gross margin improvements are still quite conservative given the ramp in revenues. We believe there are still upsides here. Look for superb operating expense control to continue which will allow for good leverage and a steep ramp in earnings. We could still see some modest upside surprises here if sales are stronger than expected. 2Q00 Details: Quarter Well Ahead Of Expectations Actual SSB Estimate Revenues $289 million $270 million Gross margin 43.5% 42.8% Operating expenses 27.1% 29.7% Operating margin 16.4% 13.1% EPS $0.98 $0.72 Consistent with other equipment companies, Lam announced a significantly better than expected fiscal 2Q00, with EPS of $0.98 versus our estimate of $0.72 (consensus). However, earnings were actually $1.02 if taxed at the previous guidance of 10%, versus the 14% tax rate reported in the quarter. Fully taxed at 30%, EPS would have been $0.80. Upside was due to higher revenues/gross margins, better operating expense leverage, and higher non-operating income. Revenues increased 20% sequentially to $289 million, 7% higher than our estimate of $270 million, driven by pull-ins of deliveries. Asia-Pacific and Taiwan were notably strong, each representing 31% of sales while North America accounted for 28% and Japan 10%. Gross margins improved by 180 basis points sequentially to 43.5%, and beat our 42.8% estimate by 70 basis points. The improvement in gross margins continues to be driven by lean manufacturing initiatives and improved absorption of overhead costs. The company is targeting to reach gross margins of 45% by the June quarter. We believe this is very achievable with some room for upside. Strong Orders Driven By North America and Japan Orders accelerated from September and increased 25% sequentially (vs. a 10% seq. increase in Sept. to approximately $350 million from $280-$285 million. Book-to-bill improved to 1.20+ from 1.15. Orders were particularly driven by North America and increased penetration into Japan. Unlike many equipment companies that recorded a disproportionately high percentage of orders from Taiwan, Lam's orders were well distributed in all regions of the world as follows: North America - 30%, Europe - 30%, Japan - 13%, Asia Pacific - 37%. Korea was the only weak region (most likely due to slow activity at Hyundai-LG). The Teres is ramping well, with multiple orders received during the quarter. Interest for copper CMP is strong and we believe the company should begin receiving 5-10 system orders as early as June. We expect Lam to achieve a 20% booked market share by the end of 2000, which will offset the decline in the cleaner revenue stream. 300mm orders were minimal but expected to ramp in the next 9-12 months. Our model indicates that system backlog increased to around $330 million from $270 million, which represents slightly over 4 months of backlog at March's projected run rate. Very strong Operating Expense Control Continues. Lam continues to demonstrate superb operating expense control, with operating expenses only increasing 6% despite the 20% increase in revenues. Management's ability to hold operating expenses flattish despite rising revenues has resulted in incredible operating leverage. As a percentage of sales, operating expenses declined from 30.5% in 1Q00 to 27.1%, well below our 29.7% estimate. SG&A expenses increased 10% sequentially to $38 million (13.2% of sales vs. our 13.8% est.) while R&D expenses increased 3% to $40 million (14.0% of sales vs. our 15.9% est.). The company's long-term target is for operating expenses to decline to 25-26% of sales, split between 12-13% in SG&A and 13-14% in R&D. We are modeling the company to reach operating expense of 26.1% in 4Q 00 and 25.0% in 4Q01. Raising Estimates And Price Target. Following the better than expected results and our expectation for faster etch market growth (40%+), we are raising our fiscal 2000 EPS estimate to $3.90 from $2.97. We note that our new estimate assumes a 13.5% effective tax rate versus a 10% tax rate to arrive at our previous estimate. The higher earnings are the result of a higher revenue forecast of $1.21 billion versus $1.09 billion previously, slightly higher gross margins (43.8% vs. 43.0%), and the accompanying operating expense leverage (we are lowering our operating expense estimate to 27.4% from 29.7%). We are also raising our fiscal 2001 EPS estimate to $4.90 from $3.46 due to higher revenues ($1.64 billion vs. $1.28 billion previously) and better operating expense leverage (25.3% vs. 28.4% previously). Our gross margin estimate remains unchanged at 46.3%. Our fiscal 2002 estimate increases to $5.75 from $4.31. Our model calls for 61% revenue growth in calendar 2000, which we believe is achievable given that Lam should gain some share in the etch market and gain appreciable share in the CMP market. This is also consistent with Novellus' and KLA-Tencor's growth rates of 80% and 60%, respectively. We are reiterating our Buy rating and raising our price target to $191, or 35x our calendar 2001 estimate of $5.46. We are using a 35x multiple to value the shares of Lam, which is consistent with the multiple afforded to KLA-Tencor and Novellus. More importantly, with 200-300 basis point upside in gross margins, a new CMP product cycle kicking in, and a richer end-market exposure, we believe that Lam Research will be the best performing stock in our coverage universe dur ing 2000 and we are reiterating our 1H (Buy, High Risk) and Top Pick 2000 rating.

To: Proud_Infidel who wrote (3900)	1/21/2000 12:24:00 PM
From: Jong Hyun Yoo	Read Replies (1) \| Respond to of 5867

Another SSB's comment on BTB number. Very bullish on LRCX.. Dec. total equipment book-to-bill was 1.18, up from Nov.'s 1.10. Total bookings up 8% with shipments up a slight 1%. Front-end b-to-b increases slightly to 1.15 from 1.12 (Nov.). Orders up 5%, shipments up 3%. Back-end b-to-b increases sharply to 1.25 from 1.05 (Nov.). Orders up an impressive 15%, shipments down 4%. Lam Research (1H, Top Pick) and Teradyne (1H) are our top two picks. --OPINION:------------------------------------------------------------------ Solid Bookings Growth Inline With Strong Equipment Earnings Reports Inline with the upside earnings announcements of the equipment companies for the December quarter, overall equipment bookings rose by a healthy 8% in December, versus our estimate of 8%-10% sequential growth. While we had expected similar strength from both the front-end and back-end equipment companies, the back-end was disproportionately stronger with bookings growth of 15% versus the front-end growth of 5%. However, shipments grew at a much slower pace than what we had expected with an overall 1% sequential growth versus our expectations of 5%-7% growth. Back-end shipments actually declined by 4% with front-end shipments growing 3%. We find the shipments decline difficult to understand in the context of the 20%-30% sequential revenue growth posted by most equipment companies, and we believe that it could be revised up over the next few months. This slow increase in shipments resulted in a higher than expected total book-to-bill of 1.18 versus the expected 1.13 - 1.15 range. Front-end book-to-bill of 1.15 was in the low end of our 1.15 - 1.18 range with the back-end book-to-bill of 1.25 well above our estimate of 1.08. Total Book-To-Bill Rises To 1.18 From 1.10 SEMI's December book-to-bill rose sharply to 1.18 from 1.10 in November as bookings grew as expected while shipments grew at a more modest rate. Total U.S. equipment bookings rose 8% to $1,833 million after a 6% growth in November. Shipments, however, only grew 1% sequentially to $1,558 million after 4% growth in the previous month. The slower than expected rise in shipments led to a total book-to-bill which was in the high end of our expected range. Front-End Book-To-Bill Rises Slightly To 1.15 From 1.12 The front-end book-to-bill fell in the low end of the expected range at 1.15, up from 1.12 in November. Bookings increased 5% to $1,309 million after a similar 5% increase in the previous month. After strong December quarter commentary from the front-end equipment manufacturers we had expected stronger growth, but an even slower ramp in sales led to the uptick in the book-to-bill. Sales grew 3% sequentially to $1,140 million after growing 4% in November. Stong Growth In The Back-End To 1.25 From 1.05 As in November, the biggest upside came in the back-end with the book-to-bill rising sharply to 1.25 from 1.05 in the previous month. Bookings rose by an impressive 15% to $524 million versus a 9% rise in November. The spike in the back-end book-to-bill was compounded by the 4% sequential decline in back-end shipments to $418 million. Shipments rose 4% in the previous month. Year-Over-Year Comparisons Are Still Strong Year-over-year shipments and bookings patterns are still very impressive as the industry continues to grow at a rapid pace. Total bookings are up 107% from December-98 after a 122% year-over-year improvement in November, with shipments up 69% versus a similar 69% rise in the previous month. Front-end bookings are up 93% (104% in November) with shipments up 67% (61% in November). The most impressive year-over-year comparisons are still evident in the back-end, with a 154% rise in bookings (190% in November) and 77% increase in shipments (91% in November). Total 1999 Bookings And Shipments Well Above 1998 Levels 1999 was an extremely positive year for the equipment industry and was a sharp contrast from the terrible downturn of 1998. As such, total, front-end, and back-end bookings and shipments for 1999 were well above the depressed levels of the previous year. Total bookings for 1999 rose 60% to $17.5 billion, front-end bookings also rose 60% to $12.9 billion, and back-end bookings rose an impressive 64% to $4.6 billion from 1998. Shipments, however, rose by a more modest rate as equipment companies started to build more backlog. Total shipments rose 9% to $15.1 billion, front-end shipments rose 11% to $11.2 billion, and back-end shipments rose 2% to $3.8 billion. Orders Surpass The 1997 Cycle Peak For Both The Front And Back-End This is the first month in which both the front and back-end surpassed the peak bookings level achieved during the 1997 upturn. December's total bookings of $1,833 million are now a healthy 12% above the November 1997 bookings of $1,633 million, with front-end bookings of $1,309 million also 12% above the November 1997 peak of $1,170 million. Similarly, back-end bookings of $524 million are a full 13% above the 1997 cycle peak of $463 million. We should see continued growth in bookings as the current upturn has additional drivers (communications/networking/consumer) versus the 1997 cycle, which was predominantly PC driven. Shipments Still Below Cycle Peak As Industry Builds Backlog As the industry is more keen on building more backlog as compared to the previous cycle, it is only the back-end which surpasses the 1997 peak levels in shipments. Back-end shipments of $418 million are 4% above the peak level of $401 million in December 1997. However, total and front-end shipments are still off the November 1997 levels, illustrating the industry's urge to build backlog. Total shipments are still 5% off the peak of $1,634 million and front-end shipments are 8% below the peak of $1,240. In addition, for the first time in recent memory, the previous months' bookings and shipments data were not revised (less than 1%), resulting in more meaningful sequential comparisons. Top Two Picks Are Lam Research And Teradyne Our top two picks are Lam Research and Teradyne. We rate Lam Research 1H (Buy, High Risk) with a price target of $191, or 35 times our calendar 2001 EPS estimate of $5.46, and Teradyne 1H (Buy, High Risk) with a price target of $98, or 40 times our 2001 EPS estimate of $2.45.