Novellus Lowers Order Guidance As Expected

In a mid-quarter conference call with analysts Thursday night, semiconductor equipment maker Novellus (NVLS) shifted its guidance on June orders to down 15-20% sequentially, from previous guidance of down 10%-20%. That is basically what the Street had expected the company to do.

On the call, CFO Bill Kurtz said he expects the company is “likely to be closer to the lower end of the range given the current trends on orders.”

Other guidance remained unchanged: the company sees shipments of $440 million to $450 million; revenue of $410 million to $420 million, gross margin of about 50% and EPS of 42-45 cents GAAP, 45-48 cents pro forma.

CEO Richard Hill said on the call that he expects NAND flash prices to firm in June and into July “as we believe supplies will begin to become tighter, and we think that will bode well for ongoing investment as the year continues.”

Hill made an interesting comment on the impact on the equipment industry of buyouts in the chip business.

There’s a lot of private equity buyouts of semiconductor firms. I do not see that as a positive. Private equity firms come in, try to increase cash flow, one of the key areas they focus on is capital expenditure, so to the extent any big purchasers of capital equipment take themselves private, I think that tends to be a negative for us.

Hill was also asked on the call whether he thought the semi equipment companies themselves would be targets of private equity investors, he responded in effect that the market is covered well enough by the Street that the stocks are appropriately valued already. “The question is whether private equity can get their money out of it and I venture to say they probably can’t,” he said. In other words, he doesn’t see it happening.

Meanwhile, he noted that the company has $600 million left on its current buyback authorization, which expires in September 2008, and that the company plans to “make sure that we accomplish that.”

Satya Kumar, an analyst at Credit Suisse, trimmed his estimates on the company Friday morning. For 2007, his EPS estimate drops to $1.64 from $1.73; for ‘08, he goes to $1.39 from $1.67, now far below the consensus of $1.39. Kumar asserts that the second quarter will not be the trough for the company. “We think that orders are unlikely to recover meaningfully until late 2008, which implies estimates have substantial downside risk,” he writes.

NVLS 1-yr chart: