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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (7943)	1/3/2003 10:54:15 PM
From: Return to Sender	Read Replies (1) \| Respond to of 95456

Semiconductors . . . Integrated Circuit reported that December Quarter revenues rose 7% sequentially versus previous guidance of 3-5%. ICST also announces that it expects to meet EPS guidance of $0.22-$0.23 for the quarter. Software . . . Cadence issued revised expectations for 4th quarter 2002 and 2003. For 4th quarter 2002, the company expects revenues in a range of $272-$278 million, as compared with our forecast of $338 million, the difference being the result of the combined effects of a higher subscriptions license mix (at about three-fourths, excluding maintenance), longer deal duration (3 years, up from 2½ years previously), slightly lower than expected bookings, and the renegotiation and therefore revised recognition schedule of a portion of the prior subscriptions backlog (which was over $500 million as of 3rd quarter 2002). Estimate that product bookings were about $295 million, up 1%, compared with our estimate of $303 million, which means that product bookings for the year were about $1.00 billion, up about 7%, including acquisitions. Like its peers, such as Synopsys and Mentor Graphics, Cadence is feeling the continuing effects of little or no growth in customers' budgets and the pressures for payment term considerations, which is seen at least in the longer duration deals; interestingly, Synopsys' most recent duration was even longer, at 3.7 years. The company said it closed all the renewals it had expected during 4th quarter 2002, and that the "Encounter Platform" for physical design optimization remained a strong performer, although the product bookings forecast is being reduced nevertheless. Expect that emulation hardware and design services will remain under pressure too. Cadence expects 4th quarter proforma earnings of $0.02-$0.04 a share, compared with estimates of $0.14 a share. Analysts have reduced 4th quarter 2002E to $274 million and $0.02 a share. There will be an additional $70 million expense for severance (there will be a net reduction of over 400 employees), facilities, and asset write-offs, and as a result Cadence expects a material reduction in costs & expenses in 2003 (something we think it would have had to aim for anyway to achieve the previously targeted earnings for 2003). There will be on the other hand a large gain from the receipt of cash for the Avant! litigation settlement. For 2003, Cadence expects product bookings to be "approximately flat", as compared with our prior estimate of about 5% growth. The bookings forecast aligns much more closely now with the estimates for Synopsys' bookings this year. Even so, 2003 will be still be an important year in terms of the development and delivery of various updated and integrated design applications. Subscriptions are expected to be 80-90% of product bookings, up from the prior estimated range of 70-80%. The mix change, plus the other revenue composition effects noted as well for 4th quarter 2002, results in a material reduction in the 2003 revenue estimate, to $1.16 billion, down 10% from 2002, as compared with a prior $1.38 billion estimate. Even taking into account the estimated declines in cost of revenues, sales & marketing expenses, and G&A, analysts have reduced 2003E to $0.50 a share from $0.85 a share. In prior forecast, analysts have assumed revenues would be lower year/year through the first half of 2003; now it's more likely revenues - and bookings - will decline through at least 3rd quarter 2003 and that we'll need to await 2004, or 4thq quarter 2003 at the earliest, for a more material improvement in bookings and reported results. Cadence Design cut to Sell at Merrill Lynch following warning. 2020insight.com