7 Reasons Why FBR Is Looking Down On The Semi Equip Sector

Mehdi Hosseini, an analyst with Friedman Billings Ramsey, Monday downgraded his view on the semiconductor equipment sector. He cut ratings for ASML Holding (ASMLD), KLA Tencor (KLAC), Rudolph Technologies (RTEC) and ASE Test (ASTSF) to Market Perform from Outperform. He laid out a multi-part thesis for his more negative view:

• “Coverage universe” up 32% since August ‘06, versus SOX down 8%; “upside is limited to less than 10%,” he contends.
• He sees “increased risk of double ordering” in the fourth quarter, and so increased risk of excess inventory in the first half of 2008.
• Sees equipment bookings flat to down after an up Q1 2008.
• Says 2008 cap ex growth of 3% is “best-case scenario.”
• Sees NAND/foundry cap ex growing in ‘08, but logic flat-to-down and DRAM off 20%.
• Lack of leverage in P&L, buybacks to have marginally less impact than in ‘07, so EPS growth driven mostly by top line.
• Risk/reward no longer compelling.