If you thought 2008 was a rotten year for the semiconductor capital equipment sector, wait until you get a load of 2009.
Several analysts Monday weighed in with revised forecasts for chip industry capital spending for this year, and the prognostications are startlingly grim. That said, the pundits have mixed views on whether the Street has already discounted the dismal outlook for this year - and whether the time has come to bottom fish in the group.
- Credit Suisse’s Satya Kumar Monday morning writes that he now expects 2009 semi cap spending to be down 44%, worse than his previous forecast of down 28%. He sees no meaningful spending recovery until 2011. He says the industry faces the combined effects of reduced consumer spending in developed markets, lower demand for DRAM, delayed ramp of new NAND products, structural compression in logic and lower foundry sector capital intensity. Kumar cut his rating Monday on Novellus (NVLS) to Underperform from Neutral, chopping his price target on the company to $9.50, from $12. For 2009, he now sees the company posting revenue of $536 million and a loss of 76 cents a share; the Street has been expecting $702 million and a loss of 40 cents. For 2010, he sees revenue of $625 million; the Street sees $905 million.
Kumar also cut estimates today on Varian Semiconductor (VSEA), KLA-Tencor (KLAC), Applied Materials (AMAT) and Lam Research (LRCX).
- Barclay’s Capital’s C.J. Muse moves to a Neutral stance on the sector, from a bearish view, although he says capital spending could be down 50% this year, driving all the companies in the industry to lose money. “Investors don’t want to miss the bottom, but we think it is too early,” he writes. Muse notes that the sector has rallied nicely off its November lows, and that there is some possibility of further near-term gains, but that valuations on 2009 estimates are still expensive. “We are hard pressed to call for strong recovery off the bottom and expect shares to be range-bound.” Muse did raise his rating Monday on Teradyne (TER) to Overweight from Equal Weight; but he cut estimates on Teradyne, Verigy (VRGY), KLA-Tencor and Cymer (CYMI).
- Stifel Nicloaus analyst Patrick Ho sees capital spending down 35% this year, after an estimated 37% drop in 2008; his old forecast was for a 28% down year. His new forecast would put 2009 spending at $23.7 billion, below the depressed 2002 level of $27.3 billion, which was down 37% from 2001. He says push-outs and project delays will “depress cap ex across the board,” but says that investors are braced for bad news; he sees earnings warnings ahead, but that the stock could actually extend their recent rise on the news. Ho maintains Buy ratings on Varian, Lam Research and Applied Materials.
