Earnings Preview: Novellus Systems

Novellus Systems (NVLS) is expected to report Q3 earnings after market close Wednesday Oct. 15, with a conference call scheduled for 4:30 pm ET.

Guidance

The consensus estimate is 4c for EPS and $245.56M for revenue, according to First Call.

Analyst Views

Novellus opened its mid quarter update conference call with a bleak view of the industry, noting the industry had deteriorated further since the company's last conference call. While management's mid-quarter update noted weaker markets, the company provided unchanged guidance of EPS 1c to 5c, revenues $240M to $252M (down 2% to 7%), bookings of $200M to $246M (down 15% to up 5% sequentially), shipments of $225M to $250M (down 6% to up 4%), and a gross margin of approximately 45% to 46%.

RBC Dain expects Q3 results in-line with previous guidance. Since its comments at the beginning of October, the firm has become incrementally negative on the sector and continues to recommend under-weighting the semicap sector. The firm expects orders/shipments/revenues for the industry to trend down for the next two to three quarters compared to our previous expectation of an up-tick in the December quarter. For Novellus, it expects revenues to fall below break-even level unless management takes preemptive measures to lower operating expenses below the previously stated goal of $110M per quarter.

Deutsche Bank said that Novellus could fall short of Q3 bookings guidance, and the firm anticipates a further decline in Q4 revenue guidance, potentially in the high single digit percentage range.

In terms of its earnings call, Stifel expects the company to take a subdued tone regarding the near term outlook. While Novellus has broader exposure than some of its peers (with exposure to the likes of Intel (INTC), AMD and the foundries), the firm expects Novellus to guide orders and revenues down on a quarterly basis. Stifel would not be surprised to see another 10% to 15% decline in orders, while its current December quarter revenue estimate may still be too aggressive. The firm believe that memory, foundry and most logic (excluding Intel) orders will remain depressed for a period of time, until visibility improves for overall semiconductor demand, which appears weak in a deteriorating global economic market.