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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 (1184)	10/25/2004 9:47:36 PM
From: mopgcw	Respond to of 1227

GS US SEMI EQUIP: WEAK BOOK-TO-BILL BUT INDUSTRY STILL ADDING EXCESS CAPACITY Summary: SEMI released the Sept. US book-to-bill ratio of 0.96 (GS 0.99) on lower than estimated orders and shipments. Orders were 8% below our est. and -10% m-o-m and shipments were 5% below our est. and -5% m-o-m. Sept. is the first month in 11 where the ratio has dipped below 1.0, (b- t-b remains below 1.0 for 11 consecutive months in the average downturn). Back-end orders dropped precipitously (-30% m-o-m), which we believe portends both very weak Q3 orders from TER when it reports on Tuesday night and increasingly weak front-end orders as the data show that the back-end typically leads the front-end into and out of upturns/downturns. We continue to believe that the industry is in a downturn that is being driven by excess supply with front-end semi equipment shipments still trending well above normalized levels implying that the industry continues to add excess capacity. We expect the stocks to make new cycle lows as the downturn is likely to either last longer or be more severe than expectations. 3-MONTH ROLLING AVERAGE BOOK-TO-BILL OF 0.96 WAS 0.03 below OUR 0.99 ESTIMATE ON LOWER THAN EXPECTED ORDERS AND SHIPMENTS. Semiconductor Equipment and Materials International (SEMI), a semiconductor equipment industry trade association, reported its three-month rolling average September bookings and shipments statistics on Monday night. The U.S.-based semi equipment suppliers' book-to-bill ratio was 0.96, 0.03 below the GS estimate of 0.99. September marks the first month of a total book-to-bill ratio below 1.00 in 11 consecutive months. Since the early 1990's (when the book-to-bill data became available), when the ratio has dipped below 1.00 it has stayed on average below 1.00 for 11 consecutive months. Orders were $1,359 million (-10% month-over-month and +75% year-over-year), 8% below our estimate of $1,470 million. Shipments were $1,420 million (-5% month-over-month and +75% year-over-year), 5% below our estimate of $1,490 million. The front-end book-to-bill was 1.03 on orders -6% month-over-month and +105% year-over-year and shipments -3% month-over-month and +85% year- over-year. The back-end book-to-bill ratio was 0.64 on orders -30% month- over-month and -16% year-over-year and shipments -13% month-over-month and + 42% year-over-year. The August book-to-bill ratio was revised upward to 1.01 from 1.00 on essentially unchanged orders and 1% lower shipments (lower denominator leads to higher overall ratio). 30% MONTH-OVER-MONTH DECLINE IN BACK-END ORDERS LIKELY PORTENDS A WEAK Q3 ORDER NUMBER FROM TERADYNE WHEN IT REPORTS TUESDAY EVENING AFTER THE CLOSE (CALL HELD WEDNESDAY MORNING). Back-end orders were down 30% month-over- month, which we believe likely portends a weak Q3 order number from Teradyne when it reports on Tuesday evening (call held Wednesday morning). We originally modeled Q3 gross orders for TER of $450 million (down approximately 20% sequentially), but we believe that there is significant downside risk to this estimate. September marks the fifth consecutive monthover- month decline in back-end orders and marks the first month of a year- over-year decline in back-end orders. We note that back-end orders are still 182% above the trough they reached during the 2001-2002 downturn in November of 2001. INDUSTRY CONTINUES TO ADD EXCESS CAPACITY. We continue to believe that the industry is adding excess capacity as worldwide front-end semi equipment shipments are well above their normalized levels and are at the second highest level above their trendline that they have ever reached (except in the 2000 "bubble). We also note that US semi equipment front-end shipments were only down 3% month-over-month in September. Shipments must trend back below their trendline to correct for the excess capacity that has been added to the semiconductor industry before they can improve. WE EXPECT THE OCTOBER BOOK-TO-BILL TO DECLINE TO 0.93 ON A 5% M-O-M DECLINE IN ORDERS AND 3% MONTH-OVER-MONTH DECLINE IN SHIPMENTS. We are estimating a significant deterioration in the book-to-bill ratio in October to 0.93 on a 5% m-o-m decline in orders and a 3% m-o-m decline in shipments. We are modeling three-month rolling average overall orders of $1,290 million (-5% month-over-month) and overall shipments of $1,380 million (-3% month-over- month). We estimate front-end shipments of $1,125 million (-3% month-over- month) and front-end orders of $1,130 million (-5% month-over-month), yielding an estimated front-end book-to-bill ratio of 1.00. We estimate back-end shipments of $255 million (-3% month-over-month) and back-end orders of $160 million (-5% month-over-month), yielding a back-end book-to- bill ratio of 0.63. WE CONTINUE TO BELIEVE THAT THE STOCKS WILL MAKE NEW CYCLE LOWS. 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, but we continue to recommend that investors avoid the stocks as we continue to believe that the industry is experiencing a downturn that will either last longer or be more severe than current Street expectations, which call for a short and shallow downturn. We believe that the stage has been set for the next leg down in the Semi Equipment stocks as we exit 2004, driven by disappointing earnings reports coupled with investors losing their appetite for beta at year-end. We believe that the stocks will be driven lower as the downturn progresses, as either the magnitude of weak fundamentals is likely to continue to disappoint or fundamentals will be weaker for longer than expected. I, Jim Covello, hereby certify that all of the view