Friday, September 29, 2006

Calls of Note Part 1

- Teradyne (NYSE:TER) will be in the casualty list today as two firms are cautious on the co this AM:

* Banc of America is cutting their second half calendar 2006 estimates oN TER saying they think the ongoing chip inventory correction will result in weak orders in the SOC test segment and Asian contract manufacturers. Teradyne has high exposure to both.

They now estimate that September revenues will be $350M, at the low end of prior guidance, $340-370M. Firm expects December revenues to decline another 7% to the $320M range.

With most of the restructuring behind the company, earnings appear to be peaking in the $1.00 range or $0.85 fully taxed. It raises questions as to the normalized earnings power of the company. To date, the firm was thinking that peak earnings would be in the $1.30-1.40 range, fully taxed.

If the normalized earnings estimate moves materially lower because of a lower than expected peak earnings, then there could be downside risk for the stock to the $10 range. The firm will wait for the earnings call to consider any adjustments.

* FBR notes their checks at subcontractors/contacts suggest that 3Q bookings decline will be in the 30%-40% range QOQ, much worse than expectations of down 20%, thus resulting in a shortfall in revenue/EPS estimates. The firm expects semi test bookings to decline by as much as 35%-40% QOQ, while non-semi test bookings are expected to decline by 30%-35% QOQ. Their checks also suggest that semi test bookings by subcons were especially weak, with an estimated 40%-plus decline sequentially.

Given such a scenario, they expect shortfall in their revenue and EPS estimates in both 3Q and 4Q.

Given weaker 3Q bookings, they are lowering their below-consensus estimates. 3Q/4Q revenue
estimates changed from $355M/$321M to $348M/$251M, vs. consensus of $354M/$336M. GAAP EPS estimates changed from $0.18/$0.14 to $0.16/ $0.05, vs. consensus of $0.20/ $0.16. Pro-forma EPS is ~$0.03 > GAAP in 3Q and 4Q. Consensus began to decline post 2Q06 earnings report, and the firm expects another round of cuts following 3Q06 report.

Reits Underperform and $11.50 tgt.

Notablecalls: Both calls are actionable and together they will likely do some serious damage to the stock price. In fact, I would not be surprised to see the whole Semi space to get hit following the notes.

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