- Lam Research (NASDAQ:LRCX +4%), KLA-Tencor (KLAC +2.2%), ASML (ASML +2.6%), Axcelis (ACLS +3.9%), Rudolph Technology (RTEC +2.3%) and Xcerra (XCRA +4.9%) have caught sympathy bids after chip equipment giant Applied Materials (AMAT +9.4%) slightly beat FQ1 estimates and (more importantly) issued strong FQ2 guidance. The Nasdaq is up 0.3%.
- Applied's numbers come after Lam and ASML forecast demand would pick up in calendar Q2 following a soft Q1. On its earnings call (transcript), Applied forecast the wafer fab equipment (WFE) market would be roughly flat in 2016 - Gartner forecast a 2.5% drop in January, followed by 8.1% growth in 2017 and 9.1% growth in 2018.
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2016 outlook: NAND flash equipment spend is expected to be up ~25% Y/Y in 2016 thanks to 3D NAND investments; DRAM spend is expected to drop ~20%, and logic spend be roughly flat. CFO Robert Halliday: "We do believe that the first half is a little bit more weighted to NAND, whereas the second half is more weighted to stronger performance in foundry, logic and DRAM. So we do see a stronger second half." Applied expects to gain WFE share in 2016, aided by strong 3D NAND and 10nm process positions.
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Orders: Not surprisingly (given soft near-term demand), Applied's chip equipment orders fell in FQ1, dropping 11% Y/Y to $1.28B. However, services orders rose 12% to $773M, and display orders (boosted by OLED equipment demand) rose 71% to $183M. Energy/environmental (solar) orders fell 12% to $44M. (earnings release)
- Needham's Edwin Mok has upgraded Applied to Buy, with a $22 target. "We believe AMAT's strategy and efforts to drive growth in the Silicon, Display and [global services] businesses are finally starting to yield results, even with limited industry growth ahead. With improving gross margins and good cost control ahead, we now expect the model to deliver strong, double-digit-% earnings growth in 2-3 years, even though it is trading largely in line with other large-cap Semi names."
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Update: In other news, Lam Research and KLA-Tencor shareholders have each approved the companies' planned merger. The deal is still expected to close in mid-2016.