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

To: Donald Wennerstrom who wrote (10210)	6/18/2003 5:51:07 PM
From: Return to Sender	Respond to of 95515

Investment Lesson . . . The summer slows down for most semiconductor suppliers. In the last dozen years, we can recall only two years where the summer didn't slow materially -- 1995 and 2000. In those two cases, things came undone in 4th quarter. There is an unmovable force that obstructs the industry's path in 3rd quarter: Europe goes on vacation for the month of August, and Europe represents roughly 20% of the world market for chips. Summer vacations are the rule in other geographic regions as well. One rule of thumb is to take the sequential growth for June for non-PC chip and non-wireless companies and trim it by 30-60% for 3rd quarter. Models essentially reflect this, with 3.5% median growth for 2nd quarter and 2.2% for 3rd quarter (a 37% deceleration). Unfortunately, First Call consensus reflects acceleration in the median growth during 3rd quarter, from 3.6% to 5.3%. Semiconductor Equipment . . . Goldman Sachs commented on Semi Equip Book-to-Bill of 0.89 was below the Goldman Sachs 0.91 estimate and slightly above the Street estimate of 0.88. Following the report, Goldman Sachs is reiterating its Attractive coverage view on group. The firm believes that 6-9 month investors should be overweight the group due to increasing signs of cyclical growth beginning in 3rd quarter and still reasonable valuations as per firm's normalized free cash flow based analysis. Semiconductors . . . Intersil WLAN chip selected by 3Com OfficeConnect Wireless 11g solution consisting of an access point , gateway and PC card. JMP Securities downgrades Intersil to Market Perform from Market Outperform based on valuation, as the stock is trading near their $25 target. Marvell target raised to $36 from $32 at CIBC. The target increase is based on relative valuations and expectations that growth continues in storage and communications businesses. Firm continues to believe that investors remain overly pessimistic towards the GigE controller business. Lehman Brothers raised its rating on Vitesse Semiconductor to 'equal weight' from 'underweight.' The firm made the same call on PMC-Sierra and Applied Micro Circuits. Lehman said it believes the companies' telecom business will improve due to a combination of a stable end-market, low inventories and the conversion of application-specific integrated circuits (ASICs) to application-specific standard product (ASSPs). The firm believes the "vast majority" of inventory corrections and capital expenditure reductions are in the past, with inventories at large communication vendors such as Cisco Systems, Lucent Technologies and Nortel Networks) at their lowest levels in three years. "While we believe that valuations have expanded considerably to anticipate revenue growth we believe business has bottomed and upside potential to our estimates is likely," Lehman said. DRAM manufacturers are building internal inventories. According to a variety of sources, DRAM manufacturers are holding back supply from the spot market right now in hopes of raising spot prices and perhaps even contract prices. Micron's quarter ended two weeks ago, and the company is now building internal inventories after pushing to get product out the door through late May. Other firms and speculators are also holding inventories in the hopes of getting better pricing later in the summer. DRAM demand is not especially strong. Despite the recent price move, DRAM demand generally has not increased above its normal run rate and do not believe content per box is growing any faster than it usually grows. Base configurations remain at 256Mb per corporate box, with "2 for 1" memory specials offered when memory prices become attractive enough. Do not believe that the content per box story is enough on its own to cause us to get more positive on our DRAM outlook. DDR 256Mb 400MHz part has lots of bark but little bite. Despite being priced at a 40% premium in the spot market versus the 266MHz part, the 400MHz part is not enough of total volume to really deliver meaningful upside for most DRAM manufacturers in the next two quarters. Expect volumes at 400MHz to be about 5% of total volume in 2nd quarter rising to 10-15% in 3rd quarter. Given the success that Samsung, Infineon, ProMOS, Powerchip Semi, Nanya, and Mosel are having at producing the 400MHz part, do not believe a supply shortage will persist on this spec -- unlike the SDRAM to DDR transition. robblack.com Thanks for the updated tables Don. It really helps to clarify the numbers to see them in this form. RtS