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Technology Stocks : Helix Technology, a cold play on semiconductor equipment -- Ignore unavailable to you. Want to Upgrade?

To: mopgcw who wrote (1168)	7/19/2004 9:33:40 PM
From: mopgcw	Read Replies (1) \| Respond to of 1227

GS US SEMI EQUIP BOOK-TO-BILL: ROUGHLY IN-LINE WITH SOME BACK-END WEAKNESS Summary: SEMI released the June US book-to-bill (b-t-b) ratio of 1.08 (GS & Street 1.11). Orders were +3% m-m (1% above our est) and shipments were +5% m-m (7% above our est). Back-end orders declined 7% m-m, marking the 2nd consecutive month during which back-end orders have declined m-m. We believe that the decline in back-end orders supports our contention that the industry is in the later stages of the upturn as the back-end typically leads the industry into a downturn. We also believe that the June data underscore the significant amount of capacity set to come online in H2'04/H1'05 as the y-o-y increase in shipments and orders in June is the third highest in the history of the data. We are estimating a slight decline in the b-t-b ratio in July to 1.07 on order growth of +1% m-m and shipment growth of +3% m-m. We continue to emphasize that the b-t-b should not be a trading event for the stocks as it is backward looking and unaudited. No change to our belief that it is too late in the fundamental cycle to be overweight the stocks. Our coverage view remains Neutral. 3-MONTH ROLLING AVERAGE BOOK-TO-BILL OF 1.08 WAS BELOW OUR 1.11 ESTIMATE ON STRONGER THAN EXPECTED SHIPMENTS. Semiconductor Equipment and Materials International (SEMI), a semiconductor equipment industry trade association, reported its three-month rolling average June bookings and shipments statistics on Monday night. The U.S.-based semi equipment suppliers' book- to-bill ratio was 1.08, 0.03 below the GS and the Street 1.11 estimate. Recall that higher than modeled shipments (denominator) leads to a lower overall ratio. Orders were $1,607 million, 1% above our estimate of $1,585 million (+3% month-over-month and +123% year-over-year). Shipments were $1,482 million, 7% above our estimate of $1,430 million (+5% month-over- month and +91% year-over-year). The front-end book-to-bill was 1.08 on +6% orders month-over-month and +150% year-over-year and shipments +6% month- over-month and +96% year-over-year. The back-end book-to-bill ratio was 1.10 on orders -7% month-over-month and +57% year-over-year and -1% shipments month-over-month and +74% year-over-year. May's overall book-to- bill was revised downward to 1.10 from 1.11 on 1% lower orders and 1% lower shipments. BACK-END ORDERS DECLINED 7% MONTH-OVER-MONTH, MARKING THE SECOND CONSECUTIVE MONTH-OVER-MONTH DECLINE IN BACK-END ORDERS. We note that back- end orders declined 7% month-over-month in June, marking the second consecutive month-over-month decline in back-end orders (which declined about 2% month-over-month in May) after back-end orders had increased for 14 out of the previous 16 months. We believe that the decline in back-end orders supports our contention that the industry is in the later stages of the fundamental upturn, as the back-end segment has typically led the industry into and out of upturns. We also note that June back-end orders are up 6% quarter-over-quarter, essentially in-line with our Q2 order estimate for TER of +5% sequential order growth. DATA UNDERSCORE THAT SIGNIFICANT CAPACITY IS SET TO COME ONLINE IN LATE 2004/EARLY 2005. The 96% year-over-year increase in front-end shipments marks the third highest year-over-year increase in shipments in the history of the data, underscoring the significant amount of capacity that we believe the industry is adding as those shipments begin to yield in H2'04. Further, the 150% year-over-year increase in front-end orders is also the third highest year-over-year increase in the history of the data set (dating back to 1992), which underscores the significant amount of capacity that the industry will continue to add in early 2005 as those orders become shipments. JULY BOOK-TO-BILL EXPECTED TO DECLINE SLIGHTLY TO 1.07 ON +1% M-M ORDER GROWTH AND +3% M-M SHIPMENT GROWTH. We are estimating a slight decline in the book-to-bill ratio in July, on 1% m-m growth in orders and 3% m-m growth in shipments. Again, recall that a larger increase in the denominator leads to a lower overall ration. We are modeling three-month rolling average overall orders of $1,630 million (+1% month-over-month) and overall shipments of $1,530 million (+3% month-over-month). We estimate front-end shipments of $1,225 million (+4% month-over-month) and front-end orders of $1,300 million (+2% month-over-month), yielding an estimated front-end book-to-bill ratio of 1.06. We estimate back-end shipments of $305 million (+1% month-over-month) and back-end orders of $330 million (- 1% month-over-month), yielding a back-end book-to-bill ratio of 1.08. WE CONTINUE TO BELIEVE THAT IT IS TOO LATE IN THE FUNDAMENTAL CYCLE TO BE OVERWEIGHT THE STOCKS. We continue to highlight that the book-to-bill should not be a significant trading event for the stocks given that it is a backward looking and unaudited metric. As we have noted on numerous occasions, given that the semi equipment industry passed its normalized levels of cash flow when Applied reported EBITDA margins that were greater than 18% in February, we believe that it is too late in the fundamental cycle for investors to be overweight the semi equipment stocks. I, Jim Covello, hereby certify that all of the views expressed