Semi Equipment Shares Dropping on Applied Materials Order Guidance

Semiconductor equipment shares are down across the board following Applied Materials (AMAT) warning Tuesday night that orders in its fiscal third quarter ending July would be down 10%-15% sequentially due to a downturn in demand from DRAM manufacturers and continued weakness in the foundry sector.

I took note earlier of the Street’s comments on Applied shares, but clearly any downturn in demand from the memory sector has far-wider ramifications.

For instance, David Duley, an analyst at Merriman Curhan Ford, Wednesday downgraded his rating on Lam Research (LRCX) to Neutral from Buy, asserting that “order rates for upfront wafer processing equipment should slow in the near term, impacting shipment levels later in the current calendar year and early 2008.”

Duley cut his EPS estimate for the company’s June 2008 fiscal year to $4.33 from $4.51; he sees $4.59 for fiscal 2007.

Duley cited some of the factors Applied Materials discussed on its conference call Tuesday afternoon, in particular weakening demand for equipment from the DRAM sector. “The overall headwinds caused by a decline in DRAM equipment spending in the near term will make it difficult for the stock to move higher as overall industry orders decline and impact shipment and revenue levels later this year or early next,” he wrote. Again echoing what AMAT said, he notes that the decline in memory spending is not going to be fully offset by spending in other segments, suggesting “a few quarters of lower orders and shipments” for makers of front-end tools.

In another note, Credit Suisse’s Satya Kumar Wednesday morning wrote that the weak order forecast from Applied would have negative implications for a number of companies, including KLA-Tencor (KLAC) and Lam. He also sees implications for Varian Semi (VSEA) and to a lesser extent for Novellus (NVLS), as well as for Advanced Energy (AEIS), Brooks Automation (BRKS) and Mattson (MTSN).

In Wednesday’s trading:

* Applied Materials was down 79 cents at $18.99.
* Lam was down $1.64 at $51.55.
* KLA was down 66 cents at $54.48.
* Varian Semi was down $1.68 at $60.45.
* Advanced Energy was down 66 cents at $23.52.
* Brooks was down 15 cents at $16.47.
* Mattson was down 38 cents at $9.27.