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 (NASDAQ:KLAC), Rudolph Technologies (NASDAQ: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.