Semitool Inc. (NASD:SMTL) is a manufacturer of wafer processing equipment for the semiconductor industry. The company is active in the design, development, manufacture and support of high performance wet chemical processing equipment for use in fabrication of semiconductor devices. It's been a good business.
Revenue has moved up smartly over the last three years. The company's fiscal year ends on September 30. Top line in 2003 was $117 million, followed by nearly $140 million in 2004. In the last fiscal year, the number rose to over $190 million and operating income hit $10.7 million.
In the first quarter of the new fiscal year, revenue jumped to over $55 million, but higher R&D costs dropped operating income to $162,000. It had been as high as $4 million in the March 31, 2005 quarter.
Last week, the company announced fiscal Q2 which ended March 31. Revenue moved up again to almost $64 million from $46 million a year earlier. But, gross margins dropped from 52% to 47%. The company said the margin pressure was from investment to expand the customer base for a new product line. Income from operations did jump to over $6 million an increase of about 50% over the same period a year ago.
But, once the markets saw Semitool's guidance, the long knives came out. The range was $59 million to $62 million with gross margins in the 47% to 48% range. The stock lost over 15% of its value, falling to $9.29. The 52-week high/low for the stock is $14.00/$7.58.
There is nothing in the Semitool numbers or comments to indicate that the margin pressure and flattening of revenue are permanent conditions. If the company can show that it can begin to grow again after mid-year, the stock is cheap at these levels.
SMTL 1-yr chart:
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