Earnings Preview: Novellus

Novellus Systerms (NVLS) is expected to report Q1 earnings Monday after market close, with a conference call scheduled for 4:30 pm EDT (Monday, April 21).

Guidance

The consensus estimate is 16c for EPS and $315.45M for revenue, according to First Call. On April 8, Novellus pre-announced 1Q08, after having reiterated guidance ranges at its mid-quarter update only five weeks before. Novellus lowered its Q1 EPS view to 15c to 17c from 21c to 24c. The company said Q1 revenues will be at the low end of its prior $315M-$325M range.

Analyst Views

Stifel said, while some of the reasons behind the pre-announcement were not a surprise, such as weakness in DRAM capex, some of the company-specific issues, such as industrial application revenue recognition, inventory write-off, and higher tax rate, were disappointing.

The day after, on April 9, American Technology upgraded Novellus to Buy, saying it thought much of the negative pre-announcement was based on one-time events. Based on its checks, AmTech believes a restructuring of Novellus' business is currently underway, and CMP and dry strip will be discontinued, along with layoffs. AmTech says this will improve Novellus's profitability and make it more attractive as a take-over candidate.

Dain Rauscher said they expect about 10% downside to the Semiconductor Capital Equipment stocks heading into earnings and they continue to see significant downward revenue (about 8%) and EPS (about 20%) revision for the SCE stocks. Dain also expects the consensus CY08 capex expectation to move from current down 20% towards our down 26%. While Dain continues to believe that Novellus is best positioned in the group to deliver strong earnings growth in the next up cycle, they would wait for street estimates on Novellus to be adjusted before adding to positions.