AMAT preview: What's happened since SEMICON West?
Ahead of AMAT's July quarter results (fiscal 3Q10) on Weds. 8/18, analysts are plugging in their estimates about what the chip tool giant will say.
Credit Suisse's Satya Kumar expects "a more cautious tone" than the "extremely bullish" one it had at the industry's July fete, where most attitudes were overwhelmingly upbeat. PC demand slowed in the past three months, reflected in some weaker business from chip designers and foundries (and Cisco's underperforming demand isn't a good sign), he notes. Look for AMAT to push out some equipment, "a modest concern" (though AMAT generally pulls orders into its October quarter anyway...which could "leave a hole" in the January quarter). Business during the quarter is driven by UMC, Toshiba, Intel, and Samsung, and foundries "continue to ramp and are buying for capacity," he writes -- adding that signs of slowing orders at TSMC could be offset by UMC's recent capex ramp-up where AMAT has "high market share." Outlook: 3Q10 overall sales up ~5% to $2.4B, the high end of guidance; SSG sales up ~2%-3%, EES (solar) up ~25%, and FPD down -22%.
Barclays' CJ Muse also expects a "softening [of] its uber-bullish tone" from SEMICON West, "given recent macro concerns." He's roughly in line with the company's 3Q projections ($2.35B.), with a targeted focus in three areas: total/silicon group orders; tightening its EEG focus to crystalline-silicon solar (and not LEDs); and more restructuring, though with little disclosure on details. July quarter SSG orders were about flat (and would have declined without Semitool business), he points out. He also agrees that mainstays TSMC and Samsung are driving business (and Samsung's foundry biz will pick up next quarter), with DRAM firms taking a breather; this will widen to about 5-6 companies in coming quarters (adding Intel, Nanya/Inotera, Toshiba, and GlobalFoundries). The need for, and availability delays of, immersion lithography tools will keep everyone's orders strong throughout the year, reflecting what the company still sees as a "multiyear up cycle." Muse also invokes SSDs as a demand driver in PC tablets, which will require more new (greenfield) NAND fabs in 2011.
Things Muse says are "on the drawing board" at AMAT: going after "lower-hanging fruit" such as CMP consumables and HKMG using ALD (to get Intel business from ASMI). And in solar, he sees AMAT's refocus on c-Si as targeting a new breakeven of $700M and 10% operating margins. "In the best of circumstances, crystalline silicon related sales could perhaps earn $800M, so EES will likely have a positive contribution as long as Chinese c-Si orders hold up."
For a cheat-sheet, Muse offers up the following likely AMAT 3Q10 call scenario:
1) Order sustainability, nowhere-near-4Q08 doom/gloom despite PC concerns;
2) Any competitive wins in electroplating, 3D TSV, etch, and inspection;
3) Turning to solar, increasing lead-times for c-Si tool shipments, and completion of (what's left of) SunFab projects;
4) In LEDs, progress in 6+ beta sites (IMEC, TSMC, Samsung, Toshiba, Micron, AUO -- "largely semiconductor behemoths that want to diversify," Muse points out).
AEIS: Much adieu about nothing
Few things get investors in a sour mood more quickly/deeply than a sudden change in high-ranking finance execs -- and so it was for Advanced Energy, when it announced on Aug.11 that CFO Larry Firestone was stepping aside "to pursue other opportunities." (AEIS stock has sunk by around -10% since the news broke.) But fret not, says Barclays' CJ Muse -- rather than a warning flag of anything structurally wrong with the company, it's part of an "in-transition" management structure diversification from a semiconductor capital equipment company to "a renewable energy grid player" highlighted by its addition of PV Powered and slough of its mass-flow controller (MFC) business. "The tailwind of WW inverter shortage along with our checks that suggest continuing smooth OEM relationships, seem to imply no red flags connected with this departure," he soothes. (And in fact AE has already filled the void with a new CFO.)
RTEC's: A better fit for Yield Dynamics
Deutsche Bank's Peter Kim views Rudolph Technologies' takeover of MKS Instruments' Yield Dynamics business as beefing up its process control and yield management capabilities, similar to last year's buy of Advanta Control Technologies. "Data mining/management software may be a better fit with inspection/metrology equipment suppliers like Rudolph," he writes, and combined with Advanta "could be a meaningful software revenue stream over time, and help push gross margins closer to the company's 52%-54% long-term target.
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