2020Insight.com Summary - March Madness without the basketball. Geopolitical concerns are the story. The market is getting as many reports of Osama bin Laden capture now as Memphis does with Elvis sightings. All this rhetoric, rumor and innuendo has caused buyers to go on strike and wait and see. The Dow and the S&P were both within striking distance of their October lows. The DJIA rose 28 points (+0.4%) to 7,552 while the S&P 500 added 3 points (+0.4%) to 804. The Nasdaq Composite advanced 7 points (+ 0.6%) to 1,279. The put-to-call ratio is inching closer to 1, suggesting the market is in oversold territory and the CBOE Volatility Index hit above 40 mid-day, but it will probably need to get up over 50 before the bottom is in.
Semiconductor Equipment . . . Axcelis Technologies has received an order for its full suite of tools from China's Semiconductor Manufacturing International Corp., or SMIC. The sale is part of a series of orders for Axcelis equipment by SMIC, China's leading chip foundry.
Teradyne reiterated its March quarter revenue guidance of $310 million-$340 million. Revenues are likely to be inline with our estimate of $315 million. The company currently expects to see sequential revenue growth in the June quarter. The company is on track to have gross bookings in the March quarter at similar levels or better with the December quarter ($307 million), with net bookings seeing significant improvement as cancellations are likely to be minimal (we believe cancellations are likely to be less that $20 million versus $72 million in the December quarter). One concern about Teradyne has been that the net bookings rate has been running about $80 million-$90 million below the revenue run rate. The company stated that it believes it can increase its bookings rate to the revenue run rate. The company was quite confident that its TCS business could remain at the $70 million-$100 million quarterly revenue run rate in the near term despite current backlog of about $110 million for its TCS business. The company noted that about half of its TCS revenues are turns business. Also, the company stated that it is still on plan for lowering breakeven to the $350 million by then end of summer 2003, and are willing to adjust that further if need be. The bulk of the cost savings are expected to come from materials cost savings (about 40%), followed by headcount reduction (accounting for about 30%), plant closings (about 20%), and divestiture of product lines, mostly from the GenRad subsidiary (about 10%).
Interestingly, the company noted that the move of manufacturing to China is not factored into its plans of lowering breakeven to the $350 million level by the end of the summer. While the company expected to see cost savings from the move to China from labor costs, one positive surprise has been the cost savings from materials. It feels it can get a 20% cost savings and could possibly get that to 40%. Actual breakeven levels due to the move to China could actually be lower than $350 million, which should be incrementally positive.
FEI Company maintained its guidance and still expects orders to be in the mid-$80 million range for the March quarter. It also stated that it expects the data storage business to be up in 2003 after a very weak 2002 for overall spending by the data storage industry. Data storage is seeing some modest strength in the March quarter. Also, it believes that there is a lot of pent-up demand and that if the purse strings open, business could improve quite quickly. On the competitive front, while FEI still believes Applied Materials could introduce a competitive dualbeam tool, it does not expect that to be a big negative as it believes the Applied Materials tool introduction further reinforces the migration of dualbeam tools in fab and is an attestment to the potential market size.
Also, the company stated its goal over the next 3-5 years is to reach $1 billion annual revenue run rate. To get there, the company is looking at both organic growth and growth through acquisition. FEI further identified acquisition targets as technologies that can be acquired; pre-IPO companies; and companies at the $50 million-$200 million level that can add scale and product diversity.
Intel presented an overview of their manufacturing strategy, stressing its plan for five 300mm manufacturing facilities. Analysts came away with a little more confidence about how Intel’s tool capex for 2004 could shape up. Three or likely four out of the five fabs could see tool deliveries in 2004 based on current technology plans versus about two to three in 2003 and Intel’s tool spending could be sequentially higher in 2004. The company noted that to be cost effective for a 300mm fab, its minimum threshold for capacity is 3K wafer/week, with a target of over 5K wafer/week. Current 300mm fab plans include: Fab D1C in Oregon (currently transitioning to 90nm production); Fab 11x in New Mexico (phase I capacity adds in 2002, phase II transition to 90nm production in 2003, and phase III in 2004); Fab D1D in Oregon (65nm development capacity add in 2003 and 65nm production capacity add beginning in 2004); Fab 24 in Ireland (phase I tool move-in in 2H03 and 90nm production capacity ramp in 2004); and Fab 12 in
Chandler, Arizona (tool deliveries beginning in 2004 and 65nm production capacity ramp in 2005). Also, the company noted that it will move its Flash manufacturing to copper interconnects at the 0.13 micron node, using its existing 200mm microprocessor lines. Also, Intel noted that its consumables cost reductions is a key focus, with particular focus on lowering copper slurry costs.
Novellus has not seen any incremental change since the company’s mid-quarter update about two weeks ago. As the company stated during its mid-quarter update, the breadth of customers for the March quarter is up over the December quarter. Regarding Samsung, Novellus feels there has not been any change to Phase II delivery plans for Samsung’s 300mm Line 12 (tool deliveries still expected to be in late 4th quarter 2003 with orders in the 3rd quarter 2003 time frame and Phase I tool delivery in 1st quarter 2003). However, we believe current soft DRAM pricing remains a risk factor.
Semiconductors . . . Infineon Technologies chairman Ulrich Schumacher said he will present his board with three different options to move the company, according to WirtschaftsWoche magazine, AFX reported. Singapore, Switzerland and possibly the United States are the likely destinations for Infineon, Schumacher said. Infineon hopes to receive several hundred million euros in tax breaks, the article said.
Salomon Smith Barney upgraded Broadcom to In-line from Underperform based on their expectation that the news flow for the company is gradually shifting from negative to positive. The firm says company is making significant progress in diversifying its rev mix, which is mitigating their concerns about its exposure to the cable market, The firm raised 2003 estimate to $0.19 from $0.16 and 2004 to $0.41 from $0.37, both slightly below consensus. Target is $15.
JP Morgan Securities raised its rating on Philips Electronics to overweight, telling clients it expects "the restructuring, combined with significant upside to the earnings contribution from TSMC, will help Philips to post sharp adjusted earnings per share improvements over the next two years."
CSFB noted that Altera raised its 1st quarter revenue guidance to a +4% Quarter over Quarter growth from its previous guidance of flat to up/down 2%. The firm raised 1st quarter rev/EPS estimates to $187.9 mln/$0.08 from $180.6 mln/$0.07, but says the stock is fully valued. Target is $12.
The market for WLAN systems is likely to be down double-digits sequentially for the March Quarter, consistent with current estimates for Intersil. Intersil has executed well in 802.11g and is now well positioned for the next WLAN product cycle for dual-band/tri-mode WLAN chips that support 802.11b, g, and a. We expect the company to begin announcing design wins in coming months. Test results of Intersil’s 802.11g PRISM GT-based WLAN products indicate to us that the 802.11g market is shaping up to be a competitive two-horse race between Intersil and Broadcom. ‘G’ is poised to drive ‘b’ down and eventually out of the market, which could put significant pressure on companies that do not have a ‘g’ solution. The recent weakness in Intersil’s stock is due to the launch of Intel’s Centrino platform, which happens today. Intel is a formidable competitor with significant marketing clout, the company is likely to see limited success until higher data rate solutions are introduced, which are not expected for several months. Intersil is one of few companies positioned for strong growth in 2nd half 2003 and that shares discount concerns over pricing and margins in WLAN. Intersil stock represents a compelling investment in an uncertain macroeconomic environment.
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