Notable Calls

- CIBC is out with a negative call on KLA-Tencor (NASDAQ:KLAC) saying they are lowering their FY08/FY09 ests to $2.80/$3.00 (vs. Street $3.17/$3.66), trimming PT to $52 (from $58) s new checks indicate sizeable share loss at Rexchip, the single largest order for semi cap equip in C4Q (Dec). Rexchip is fracturing KLAC's orders among smaller vendors like NANO, RTEC to side-step KLAC's premium ASPs.

Based on checks in the last two days, Rexchip has been pressuring tool vendors for greater pricing concessions, in light of an unexpectedly poor spot/contract pricing environment for DRAM (essentially Rexchip's sole product). In addition, given the slight acceleration of plans (tool move-in by end of March vs. end of May originally), Rexchip has also requested accelerated delivery dates. As CIBC understands it, KLAC has pushed back on further concessions on pricing, and to a much lesser extent, has encountered slight difficulty in pulling-in manufacturing schedules.

KLAC has been resilient given expectations for a +20%-25% Q/Q snap in orders in F2Q (Dec) however, share loss at Rexchip has altered this view, now see order guidance for only +10%-ish Q/Q.

Was this impact already accounted for in KLAC management's lowered order outlook at a conference in September? No.

In conjunction with market share loss at Rexchip, checks also indicate that KLAC has planned for two weeks of shutdown in F2Q (Dec), followed up by another two weeks in F3Q (Mar) next year. While the firm doesn't have concrete visibility on orders/shipments in early 08, KLAC s extensive plan for shutdowns suggests yet another quarter of depressed orders/shipments in early 08.

Notablecalls: Actionable Short Call Alert! KLAC is going to get hit following these excellent comments by CIBC's Gary Hsueh. KLAC has been a real teflon stock lately but these crack are just way too big to ignore here. Short early & aggressively.