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 : Novellus -- Ignore unavailable to you. Want to Upgrade?

To: Sam Citron who wrote (3570)	5/6/2005 10:28:56 AM
From: Cary Salsberg	Read Replies (2) \| Respond to of 3813

Hi Sam, Please reread my last post. I did read the NVLS report and you did not waste my time. RE: "We do not believe the company can reach this level when it hits these revenue points." Ever?! Obviously, not. Since revenues have been at that level recently and margins have fallen short, I liken the statement to we do not believe it will rain yesterday. One factor that negatively impacted NVLS's gross margins last quarter was actually a good thing. Normally, revenue is not booked when the product is shipped, but when the customer signs off. In this case, both revenue and COGS are deferred and so is the cash payment. NVLS has agreements with the customers for tools that are the same as others that have already been accepted and installed. NVLS receives 80% of the payment upon shipment and 20% upon acceptance. This is problematic because NVLS records 80% or the revenue and 100% of the COGS. If gross margin on these tools is 50%, 100% expense and 80% revenue produces a gross margin of 37.5%. Future quarters are helped by the 20% revenue with no costs. RE: "...the company has struggled over the past two years internally on the execution front." Yes, it is a struggle to develop new products in PVD and CMP that can take on AMAT. Only NVLS takes this on and succeeds. "Execution" sounds like someone dropped the ball, but that is not the case. RE: "...the company is experiencing heightened competitive pressures..." I think the pressure is not "heightened". After 7 years, NVLS has a superior PVD product that is ramping up. By the way, ramping the revenues of a new product is the prime reason gross margins are not expected to improve next quarter. RE: "...the company has struggled with its last acquisition, SpeedFam-IPEC." NVLS has stated in its CC that it has not lost any money on the SFAM acquisition. Of course it "struggled". SFAM had lost almost all market share and had no competitive product. As is pointed out in the article, NVLS believes it has a superior product for 65nm and expects a significant revenue ramp in 2006.

To: Sam Citron who wrote (3570)	5/6/2005 12:17:19 PM
From: Cary Salsberg	Read Replies (1) \| Respond to of 3813

RE: "From our standpoint, this is not something new as the company has struggled over the past two years internally on the execution front. In particular, the company has underperformed its peers (namely, Applied Materials and Lam Research) in terms of its margins and operating leverage." I will list the last 5 quarters of gross margin, R & D %, and operating margin for NVLS and AMAT and the last 7 for LRCX. This is what Merrill Lynch has, now. NVLS (starting with most recent) 45.3 49.9 48.4 50.2 47.4 18.3 18.1 16.4 18.8 22.4 11.8 15.5 18.1 17.4 08.8 AMAT 44.4 46.6 47.4 46.5 43.5 13.6 11.3 11.5 12.1 15.6 21.5 24.4 27.4 25.5 17.0 LRCX 50.0 52.4 51.2 49.0 45.8 45.0 42.6 13.5 12.4 12.0 15.2 18.6 20.4 21.0 24.3 28.6 28.9 21.7 11.1 06.7 03.1 It is evident that NVLS's gross margins are about the same as LRCX and AMAT, but R & D and SGA have driven operating margins much lower. R & D and SGA are costs more closely linked to new product development while gross margins more closely reflect production efficiencies and competitive pricing pressures.