Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Donald Wennerstrom who wrote (14431)	4/13/2004 1:45:44 PM
From: Donald Wennerstrom	Read Replies (3) \| Respond to of 95823

NVLS is not doing well today after having put forth an earnings report last night that more than met expectations in all regards including Bookings forecast for the next quarter. The market itself is down today(based on the "economic news being too good", but that is a story for another post), but NVLS as I write this post is off 0.88, or 2.5+ percent. Hardly what a person would expect based on their quarterly report last night. Looking through the news, there are positive comments from some analysts about NVLS, but their are other comments not so good. So let's take a look at a couple of the comments from the "not so good" side of the ledger. First, let's look at Briefing.com's report on NVLS. It is the first article in their Story Stocks entry for today. <<Novellus Systems (NVLS) 35.30 Novellus Systems reported Q1 results after the close on Monday. The developer and manufacturer of CVD (chemical vapor deposition ), PVD (physical vapor deposition) and ECD (electrochemical deposition) equipment used for manufacturing semiconductors published EPS of $0.11 on revenue of $262.862MM (+10.3% Y/Y) vs. guidance of $0.08-0.10 on $245-255MM and Reuters Research consensus at $0.10 on $251.97MM. EPS, excluding $2.5MM of pre-tax litigation settlement, was $0.12. Shipments came in at $311.0MM vs. forecast for shipments of $295-305MM on bookings of $330-340MM. Deferred revenue increased to $153.2MM. Korea accounted for 25% of sales, the U.S. 22%, Taiwan 19%, Japan 13%, SE Asia 10%, Europe 8% and Greater China 3%. Gross margin increased 134 bps Y/Y to 47.4%. Operating increased 457 bps Y/Y to 8.8%. Market conditions remains strong and operating performance continues to improve. Management expects growth to continue to trend higher but at a more moderate, sustained pace. Bookings expected to be $375-390MM and shipments $340-360MM. Guided for EPS of $0.18-0.20 on revenue of $305-325MM (+27.6-36.0% Y/Y) vs. consensus at $0.18 on $292.91MM. Shares are, based on our inverted EVA / DCF model, priced for sustained lower 30% revenue growth assuming steady Y/Y improvement to 25% operating margin. The following table shows price multiples and Y/Y growth rates for NVLS compared against the semiconductor components group. [The table is too large to put into this post, but it compares data on NVLS, AMAT, ACLS, MTSN, SMTL and ASMI] Management's upbeat comments likely to help float shares near-term. But we continue to view most of the semiconductor capital equipment group as offering very limited upside and would trade out of NVLS / the semiconductor capital equipment group given unsustainable growth and margin expectations, and above average relative valuations (see Novellus, Story Stocks, February 26, 2004). NVLS shares are priced above fair value on a discounted cash flow basis and trade at a premium to peers on a relative value basis despite the 23% pullback since November 25, 2003, when we wrote that there is no justifiable upside even if NVLS grew revenue at 30% because the market is already pricing into NVLS shares sustained 30%+ revenue growth and factoring in over 2500 bps in gross and operating margin improvement. For investors seeking a semiconductor capital equipment play, we would focus on ASM International (ASMI 23.92). ASMI has risen almost 40% since we first mentioned the company on the Tech Stocks page (October 14, 2003) but remains one of the most attractively priced names within the group.--Ping Yu, Briefing.com>> Secondly, CSFB wrote a report yesterday prior to the release of earnings, and then this morning they posted a new analysis after release of the earnings. The following are a couple of items from their report. First, as a background, it should be noted that with 21 analysts reporting, this year's earnings consensus is at 0.88 and next year's earnings consensus is at 1.52. CSFB, in their report issued today, sets this year's earnings at 0.85 and next year's earnings at 0.80, in other words, an earnings contraction next year compared to this year. They see zero or negative earnings growth going forward into 2005. They finish off their summary report of NVLS with the following notation. <<In sum, the solid execution on the top line and forward guidance that the street has learnt to view as conservative should help the stock tomorrow. But we stick with our argument that secular concerns of lower profitability cycle-to-cycle and high relative valuation limits us from being more constructive.>> Note: They are already wrong about one thing - the good earnings report did not help the stock today.;)