Thursday, November 09, 2006

Calls of Note Part 4

- Susquehanna Financial Group's Semi analyst Dan Berenbaum notes that with C3Q earnings season just about wrapped up, they continue to see more bad news than good coming down the pike - importantly, they do not believe that equipment stocks are fully discounting the severity of the near-term risk. Firm's checks suggest that orders at large equipment companies are already on a slippery downward slope, and the news is steadily getting worse. Firm sees slowing order and shipment patterns as simply a reflection of deteriorating semiconductor industry fundamentals, where a classic combination of excess capacity build and normalizing demand will drive IC unit production back down to (or below) long-term trend-line. They expect the effects will be evident when AMAT reports F4Q06 (October) results in the form of below-expectation sales and bookings numbers. Firm also foresees a disappointing NVLS mid-Q update at the beginning of December, and would not be surprised to hear about chipmaker plans to potentially idle production lines during the holiday season.

Applied Materials (NASDAQ:AMAT) prepares to pay the piper. Very recent checks indicate that industry bellwether AMAT will struggle to hit F4Q06 (October) revenue guidance and will likely miss order guidance.

Novellus (NASDAQ:NVLS) is firm's favorite short - expect the mid-Q update to be a negative catalyst. While NVLS reported a generally solid September quarter, upside came primarily from internal operational improvements, which the firm sees as running out of steam. Lacking a strong product cycle in the midst of a declining order environment, they see downside risk to both December quarter order guidance of flat to down 10% and 1H07 consensus revenue and earnings expectations.

Notablecalls: Not actionable but very good to know category.

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