NVLS mid-3Q10: When up is down
As expected, Novellus Systems in its midquarter (3Q10) update tightened its outlook to the higher end of previous estimates, tweaking up sales (7%-14%), shipments (7%-13%), and EPS ($0.80-$0.90, up 19%-34%), but did not lift bookings and margins (flat-10%, and ~50% GM) for the first time in several quarters. Credit Suisse's Satya Kumar notes the company is tracking 15 new products and sees no pushouts (yet), and believes it is not losing share in PVD and is "not particularly bothered" by Applied Material's new flowable CVD product. An emphasis that 2H10 bookings will be higher than 1H10 was interpreted by Deutsche Bank's Peter Kim to suggest how low 4Q bookings could be -- +20% in 3Q, flat-10% in 3Q, and possibly -19% in 4Q. "While a meaningful pull back in bookings has not yet materialized, signs of a pending slowdown are clearly present," he writes in a research note. And the company also acknowledged that some customers are "spooked" by signs of PC sector softness, Kumar pointed out.
Kim also points out that NVLS' deferred revenue has been climbing with overall sales but are "relatively low" vs. past cycles. Deferred sales act as a buffer when business slows, so "the lower deferred revenue bank could lead to a sharper revenue decline should the industry enter a downturn," he writes.
Backend bubble building?
Credit Suisse's Randy Abrams has downgraded his outlook on 2011 for Asian test/packaging subcons ASE and SPIL. Semiconductor backend subcons have enjoyed a strong capex rebound toward everything from inventories to technology upgrades and Cu migration; wire bonder supplies swelled 25% in 1H10. But inventory has already surpassed the post-bubble average (72 days in semiconductor, 39 for total tech). "Higher inventory and greater comfort on supply should prompt customers to cut back into 4Q," he writes.
TXN: Patient with in-house capacity
Texas Instruments seems to be looking beyond seasonal trends and share gains/ebbs, content to support long-term capacity requirements with growth in analog and embedded processing, observes Doug Freedman of Gleacher & Co. "TXN is certainly in no rush to fill its 300mm capacity with low-margin product," and can keep those utilizations low because of low-carrying costs (thanks to Qimonda fire-sale tooling), he writes. Management sees perhaps some inventory burn but no "roll-over" cyclicality, and "they believe they are advantaged in supplying semiconductor growth in 2012" as peers lack in-house fab capacity. TI seems "minimally exposed" (≤10% of sales) to reported PC sector softness, Freedman says, though he notes that the handset sector could get rocky in coming quarters since only some of the clamoring smartphone OEMs will pick up marketshare in the current upgrade cycle.