Slowdown in chip equipment demand? Analyst says group is entering 'fourth-inning rain delay'
marketwatch.com
By Brendan January, CBS.MarketWatch.com
NEW YORK (CBS.MW) -- Instead of entering a cyclical period of growth, the semiconductor capital equipment sector is entering a static period, according to a J.P. Morgan analyst Wednesday.
Growth will eventually resume, analyst Jay Deahna told clients, but not before the sector endures what he called a "fourth-inning rain delay."
He made the comments in a research note downgrading six companies within the group. Amkor (AMKR: news, chart, profile) and Teradyne (TER: news, chart, profile) were slashed to "underweight" from "neutral," while Applied Materials (AMAT: news, chart, profile), Brooks-Automation (BRKS: news, chart, profile), Cymer (CYMI: news, chart, profile) and Varian Semiconductor (VSEA: news, chart, profile) were all dropped to "neutral" from "overweight."
"We don't expect a sharp downturn, but a two to three quarter period of sluggishness as chipmakers are likely to decrease inventories," said Deahna.
In afternoon trading, Varian skidded $2.30, or 8 percent, to $24.60; Amkor fell 53 cents, or 11.7 percent, to $4; Applied Materials dropped 53 cents, or 3.3 percent, to $15.65; Brooks-Automation plunged $1.63, or 10.6 percent, to $13.58; Teradyne slipped 70 cents, or 4.2 percent, to $15.88; and Cymer declined $1.74, or 6.3 percent, to $25.71.
These companies face what Deahna characterized as "sluggish" growth -- quantified as between a slowdown of 5 percent and an increase in activity of 5 percent -- for the next two to three quarters. He also lowered his 2005 capital spending growth rate forecast to 11 percent from 36 percent and cut his company earning estimates.
Deahna anticipates the cycle will end when order growth resumes in the second quarter of 2005 and "reignites equipment stocks, following a near-term bottom."
Investors, however, should not dump the chip capital equipment stocks completely, said Deahna.
"We see this as an extended fundamental cycle, not a downturn," said Deahna, "a number of equipment companies will have the ability to demonstrate historically solid margin and cash flow results."
As such, the investor should look at these stocks from a "multi-quarter perspective."
Deahna added that most of the stocks he reviews are "better to buy at current levels for multi-quarter holding, but that it will likely take several months for sustainable upside catalysts to materialize."
In the same note, Deahna upgraded two chip equipment stocks: Mattson (MTSN: news, chart, profile) and Ultra Clean Technologies (UCTT: news, chart, profile) to "overweight" from "neutral."
In afternoon action, Mattson was down 8 cents, or 1 percent |
