Wednesday, June 20, 2007

DRAM equipment space: real-time pushouts of tool shipments

Citigroup comments on the DRAM equipment space noting pushouts of future orders now appear to be giving way to real-time pushouts of tool shipments. Checks suggest ProMos - a Taiwan DRAM maker that has recently placed big orders (~30k wsm (wafers/month), or ~$1B+) in 1H:07 - is pushing out delivery on roughly half of these orders. Based on firm's calculations, these pushouts impact total industry tool shipments by ~5-10% in CQ3, putting more pressure on consensus EPS estimates that they feel are as much as ~20-25% too high in 2H:07 and C2008.

While all suppliers are impacted, it appears impact is greatest at AMAT, LRCX - both of which have big Taiwan DRAM exposure.

Citi notes they have been on the road the past few wks speaking with a broad base of investors. The general rhetoric remains cautious - yet incredulous that stocks have remained resilient in the face of "bad news". While there has been a lot of market speculation around capex cuts, there is frankly yet to be much in the public domain regarding pushouts, capex cuts, or the like. Firm thinks it all comes down to the numbers - and equipment stocks are simply not cheap enough to tell them that the buy side's EPS estimates are that much less than the sell side's estimates.

Indeed, major equipment stocks trade at roughly a market multiple off C2008 EPS - hardly discounting a big EPS cut for a cyclical group with a slowing growth profile.

Notablecalls: The DRAM space is a mess. During the past five months, the price of 512Mb has fallen to $1.80 from $5.80 (an almost-70% decline). The DRAM makers are bleeding from their eyeballs and slashing capex should not come as a surprise. Vista continues to be a disaster, so no help coming from there.

Citi's right pointing out the resilience of the semi equipment space in face of bad news. For example, AMAT's has climbed back to the levels where it was before reporting its terrible qtr in mid-May. I have to agree with Citi here - eventually, it all comes down to the numbers.

Sitting at my old desk I would put out a short line in both AMAT and LRCX here. Tight stops just above recent swing highs. Not looking for a home run here. Just some downside.

1 comment:

dcxavier said...

The recent SEMI Book to Bill numbers show bookings rising substantially.