- Stifel notes that although the company once again posted strong results ahead of Street expectations, management's discussion of its shipments outlook (it no longer provides orders forecasts) raised some concerns over the health of the industry in the near term.
Management noted that more chipmakers were pushing out delivery dates, and that there would be some volatility over the next two quarters of when some tools would be delivered. Behind this lumpiness, there suggests some ominous signs. In firm's opinion, this trend typically signals a more cautious outlook (in simpler terms, if demand was strong and utilization rates high, chipmakers would actually prefer accelerating delivery dates versus extending them). The discussion about increasing tool push outs and a declining rate of capacity expansion near term are further indications of a potential order slowdown across the industry.
Despite these near-term concerns, they want to emphasize that Lam Research continues to outperform the industry in almost every metric, whether it be order rates, margin profile, operating profitability and cash flow. Maintains Hold.
- JP Morgan notes Lam delivered a weaker equipment demand outlook than 90 days ago, especially as it applies to shipment push outs in C1Q07. Based on the cockroach theory, investors will fear further push outs, which is reasonable in firm's view. As a result, LRCX and other equipment stocks are likely to stagnate until there is improved visibility on chip inventory depletion and a re-acceleration in equipment demand. Firm remains bullish on the year and continues to expect solid full year stock gains, mainly in the second half as they have stated previously, once the chip inventory is depleted, utilization rates begin to rise, and visibility for the next multi-quarter order cycle improves. However, they are incrementally cautious on near-term equipment stock
For large cap long only investors, they believe a likely negative stock price overreaction presents a compelling buying opportunity and recommend stepping up to LRCX shares into near-term weakness. Lam is a top tier semiconductor equipment franchise with extremely impressive cash flow yield (9% in 2007) and secular earnings power that they believe is deeply undervalued.
Reiterate OW and top large cap pick. At $50.25 (post close), LRCX trades at 11.2x JPM's new C2007 PF EPS est. of $4.50 (from $4.90) vs. univ. avg. of 14.6x.
Notablecalls: I think LRCX will go lower in the short term. It's among the first semiconductor processing equipment players to report and comments regarding pushouts will not bode well for the sentiment. After all, DRAM has been considered to be a bright spot.
LRCX 1-yr chart: