Semi Equipment Nose-Diving - Analyst Blog
April 12 2011 - 11:40AM
Zacks
We have been watching the semi equipment stocks closely over the
last few days and it seems as if our fears have been realized. Over
the last five days, shares of KLA-Tencor (KLAC),
Novellus Systems (NVLS) and Lam Research
Corporation (LRCX) lost 5.9%, 5.9% and 3.8%,
respectively.
Moreover, the decline was more pronounced after April 7, when
Taiwan Semiconductor Manufacturing Company (TSM)
lowered its outlook on semiconductor unit growth for 2011, citing
concerns related to Japan.
We cannot say we are surprised. We have been thinking that the
Japan crisis could have a more far-reaching effect on semiconductor
manufacturing than immediately met the eye. This is because Japan
is not only a significant consumer of semiconductors, but also a
significant supplier.
What this basically means is that components coming out of Japan
will be in short supply, as we have seen in the case of components
for Apple Inc’s (AAPL) iPad. This would mean that
the components not coming out of Japan, which are also
designed into the iPad (for example) would fall into excess, when
the end product did not sell as much as previously expected. This
would result in accumulation of component inventories, caution at
manufacturers and a lower level of demand overall.
For those lucky companies that do not have direct operations in
Japan, there will not be any costs associated with resumption of
production and trade. And for those like Texas
Instruments (TXN) that are able to transfer most of the
manufacturing elsewhere, lead times may not stretch out too
much. But others will have to take charges depending on the
extent of damage.
The companies that have been worst affected have been
tight-lipped about the extent of damage and here the assessment
process appears to be ongoing. For equipment companies, this is
negative in the short term, since supply to Japan will come to a
standstill, with ripple effects impacting spending in other regions
as well.
However, it could be a positive longer-term, since Japan will
have to rebuild infrastructure, which would prove beneficial for
these companies. Therefore, the weakness could be a buying
opportunity. Also, some equipment makers, such as Cymer
Inc (CYMI) have seen their strongest competition
demolished by the tsunami, so they will continue to enjoy
stronger-than-expected demand in the near-to-medium term.
The Zacks Ranks for KLA-Tencor, Novellus, Lam Research and Cymer
remain #2, indicating a Buy recommendation over the next 1-3
months.
APPLE INC (AAPL): Free Stock Analysis Report
CYMER INC (CYMI): Free Stock Analysis Report
KLA-TENCOR CORP (KLAC): Free Stock Analysis Report
LAM RESEARCH (LRCX): Free Stock Analysis Report
NOVELLUS SYS (NVLS): Free Stock Analysis Report
TAIWAN SEMI-ADR (TSM): Free Stock Analysis Report
TEXAS INSTRS (TXN): Free Stock Analysis Report
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