JP Morgan out positive on Cymer (NASDAQ:CYMI) following their visir this week. They came away from in-depth discussions with management feeling comfortable about Cymer's margin expansion program and its prospects for sustained competitive advantage. Cymer is one of their OW-rated top picks within the second tier of our Share Gain and Margin Expansion Thesis.
Management believes it is on plan to deliver margin expansion throughout 2007 and into 2008. Key drivers include mix and supply chain management. Firm is comfortable with their GM forecast of 51% in 2007 and 53.5% in 2008, up from 48.3% in 2006. Management still believes a 55% GM is attainable.
As Nikon ramps its 610C immersion tool that uses Cymer's most advanced lasers, the mix shift should be solid, especially in C2H07 on an XLR-500 ramp. Cymer expects accelerated lithography market unit growth with compelling ASP expansion in 2008 on immersion penetration in volume production outside of Flash, which should be very good for mix/margins. Importantly, later in 2007 and into 2008, Cymer's ring technology should ramp sharply, once again stretching the technology advantage versus is competitor Gigaphoton.
Notablecalls: While not much new, this note should alleviate concerns about gross margins and competitive position that have weighted on the stock. As such, would expect to see buying interest in the stock today.