Wednesday, May 21, 2008

Verigy Ltd. (Nasdaq;VRGY): Positive comments from Goldman Sachs

Goldman Sachs has a positive piece on Verigy Ltd. (VRGY), saying they expect the stock to react positively to in-line results and guidance given the recent concerns regarding a top-line miss driven by share loss to Teradyne. They continue to believe that the share loss concerns are misguided as Verigy has gained ~700bps of share over the last several years all while competitors claimed Verigy was losing share. While Verigy did guide for a significant qoq decline in CQ1 revenues, firm believes the weak sales guidance was driven by memory, with SoC revenues guided essentially flat qoq. Our view is that Verigy remains well positioned in SoC and we expect the company to continue to expand its SoC share. In addition, DDRIII should be a significant driver in 2H08 with Intel requiring DDRIII for the Nehalem launch in Q4. Verigy is well positioned to gain significant DRAM test share with the DDRIII transition.

Firm believes that Verigy's business model/profitability are undervalued with Verigy's stock trading at a 33% discount to Teradyne's on normalized EPS despite Verigy's significantly better full cycle profitability. Their view is that the multiple gap between the stocks should narrow as concerns over share loss subside and we expect Verigy's stock buyback (to begin 2 or 3 days after
earnings) to be a significant positive catalyst.

Notablecalls: So we have a Tier-1 firm calling for positive reaction on the stock for two reasons: earnings report and share buyback, both happening near-term. What can I say, it's a buy today.

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