Couple of firms comment on Mattson Tech (NASDAQ:MTSN) after the semiconductor equipment maker released its Q2 results last night:
- Citigroup maintains their Hold rating and $11 target, saying EPS [GAAP] $0.22 was a dime ahead of their $0.12 model and still a few pennies better ($0.15 GAAP, ex-charges) after normalizing for onetime DNS royalty revs and tax charge. Upside driven primarily by combination of better revs and opex partially offset by slightly lower margins. Orders $71MM (-13% Q/Q) or slightly better than Citi's $65MM model, but guidance light as they previewed (although not quite as bad) as orders down 5-10% Q/Q. Particularly disappointing is margins (a recurring theme here).
New strip/RTP products simply do not appear to have very good margins as MTSN’s core product margins in F2007 on pace to barely exceed peak margins from F2004 on much better revs; big memory exposure hurts near-term and probably a drag on C2008; competitive landscape in strip stronger w/new offering from NVLS + PSK getting even stronger in Korea.
While MTSN should grow faster than most peers in C2008 due to new markets, margin performance has failed to convince the firm that there is much leverage here. Does not see the $1 in EPS power that is needed for a more constructive view.
- Deutsche Bank also maintains their Hold rating and $9 tgt saying Mattson reported 2Q07 revenue and EPS that were largely better than expected, but fell short on bookings as the memory spending slowdown dampened equipment demand. The company's outlook was notably lower than expectations for the second half of 2007. Firm believes Mattson is leveraged to memory chipmakers in both major product lines (RTP and dry strip), and expects business to slow meaningfully over the near-term.
Notablecalls: MTSN stock traded up over 10% in after hrs action in reaction to seemingly good revenue and EPS/Gross Margin performance. Yet, it looks like most of the upside was due to a non-sustainable royalty payment from DNS.
To me it looked like daytraders looking for a quick buck on a "beat" bid up the shares. That is, until poop hit the fan as the conference call started. The tone of the call was pretty cautious, with management actually taking down their revenue guidance. The haircut in guidance looks pretty massive (60-65 mln in revs, $0.05-0.07 in Q3 vs. consensus of 78.4 mln and 0.15).
To make things worse, management yet again had a cautious tone regarding gross margins guiding Q3 to 41-43% saying new products just didn't have the expected margin profile. That's bad because MTSN has been a GM story for the past 18 months. The rest of the group has GM of around 50-60% and MTSN has been lagging badly. Investors have been waiting for new products to help GM but now it looks like no help coming from there.
MTSN does not command a sky-high valuation, but based on commentary provided by management and comments by the analyst community, I see no reason why the stock should be up today. The stock had run up with the rest of the semis and I expect the results to retrace some of these gains.
My call today is to short MTSN above yesterday's close of $11.19 (last prints were around $12 in after hours,) as I suspect it will see red today. Adjust your stops based on this risk-reward profile.
MTSN 1-yr chart:
Disclosure: Author currently has no position in MTSN
UPDATE 9:25 AM: American Tech Research has downgraded Mattson to Sell from Buy saying weaker bookings outlook vs. its fab toolmaking peer group, reflects discretionary bookings from memory chipmakers given shortened tool lead times and niche dry strip and RTP product. Firm notes it is too early to tell if MTSN could be viewed as the new canary in the coal mine for this industry.
Notablecalls: Looks like Amtech gave up waiting for GM expansion. The stock is trading below yesterday's close in pre-market.