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

To: Donald Wennerstrom who wrote (15160)	5/14/2004 11:39:22 AM
From: Donald Wennerstrom	Read Replies (1) \| Respond to of 95797

Here is another point of view on the semi-equip stocks. <<Schwab Soundview Capital Markets(AMAT, CYMI, KLAC, LRCX, NVLS, TER, and TSM) JAGfn.com 14 May 2004, 08:12am ET Semiconductor Industry: Despite 45% year-over-year equipment spending growth, we believe wafer capacity growth remains in-line with end-market growth at about 15% year over year. With no overcapacity building, we believe the current semiconductor cycle could last into 2005 and beyond if end-market demand remains robust. Many of the leading equipment stocks are trading at attractive valuations after recent pullbacks. - Initiating coverage of the semiconductor equipment and manufacturing sector. - Our analysis suggests that despite a 45% year-over-year equipment spending growth in 2004, aggregate wafer capacity growth remains about in-line with end-market unit growth at 15% year over year. Our analysis also suggests overcapacity is unlikely if 2005 capital spending growth remains at 25% year over year. - With no overcapacity building, we believe the current semiconductor cycle could last into 2005 and beyond. - In the near term, order growth could be flattish quarter over quarter. Given the steep pullback in equipment stocks, we believe the slowing order growth has already been discounted at the current prices. Given the mostly attractive relative valuations of equipment stocks, our outperform rated equipment stocks are likely to see postive appreciation from the current levels. We view the recent pullbacks as a buying opportunity for those names. - We are assigning Outperform stock ratings to AMAT, CYMI, KLAC, LRCX, NVLS, TER, and TSM due to their attractive valuations (both overall and relative valuation to other technology stocks) and key design wins. Out top front end equipment picks are LRCX and NVLS, our top back end equipment pick is TER and our top foundry pick is TSM.>>

To: Donald Wennerstrom who wrote (15160)	5/14/2004 3:45:41 PM
From: Donald Wennerstrom	Read Replies (2) \| Respond to of 95797

Here is an "update" on CSFB's review of the upcoming quarterly report by AMAT next Tuesday. <<Setting hard compares Expect upside to F2Q (Apr). AMAT will report F2Q04 (Apr) earnings on May 18, post the close of market; conference call at 4:30PM EST, 877-356-9175. We believe there is upside to our rev. and EPS estimates of $1.88bb and $0.18 to at least $2.0bb (up 29% q/q) and $0.21, versus guidance of $1.87bb and $0.17 to $0.19, street consensus is $1.89bb and $0.19. We are estimating gross new orders of $1.69bb (up 31.3% q/q) versus guidance of up 30%; and gross margins of 45.5% (versus 43.5% in Jan implying inc. GM of 55.4%). F3Q (July) guidance could disappoint. We are currently estimating July revenue and EPS of $2.1bb and $0.22 and believe the company will guide orders up 5%-10% in July to ~$1.77bb-$1.86bb; street consensus is between 5-15%. AMAT is the best proxy for improvements in supply chain efficiencies – its average lead times are still 4-6 months versus over 3 quarters in the last cycle, in spite of shipment levels that have doubled from trough levels. We are modeling B:B of 1.1 in July versus ~1.17 in April – July will mark the first decline in quarterly B:B for AMAT since the beginning of this cycle. 200mm versus 300mm. Recent order growth (up 100% from cycle trough in 3Q01) in the industry has been driven by a surge in 200mm orders (200mm was ~55% of the order book for wafer processing equipment companies (not including process control), versus ~40% in 1H03). Our bottom-up order model (see SCE weekly May 10) is currently pointing to a decline in 200mm orders in Sep, which should drive overall orders down 5- 15% in Sep. AMAT’s market share at 200mm is not much higher than at 300mm, but AMAT has had particularly strong exposure to product segments, geographies and customers who placed a bulk of the 200mm orders. We estimate WW 200mm orders in 2Q04 will be over 3x 2Q03 levels –decline in 200mm could set up difficult H/H compares for AMAT. Valuation. The stock is trading at 21.4x and 29.8x our CY04 and CY05 EPS estimates of $0.91 and $0.65 respectively; street estimates are at $0.95 and $1.19. Our universe of stocks is trading at 23.0x and 30.4x CY04 and CY05 estimates respectively; but at 15.4x street estimates for CY05. We believe street CY05 estimates may be too optimistic for the group, while there is upside bias to our CY05 estimates. AMAT’s order guidance will likely not inspire investor confidence; we believe stocks are stuck in a trading range until we get more data points on strength of end demand, which usually begins to occur in July.>>