Novellus Systems Inc yesterday said it will meet its forecast for orders this year.
Credit Suisse First Boston's John Pitzer isn't so sure.
The analyst slashed his 2002 earnings estimate for the semiconductor-equipment maker by 79 percent. He's not expecting Novellus's revenue to improve because a turnaround in computer-chip demand isn't yet on the horizon, he wrote in a report to clients.
"The industry will not have a robust recovery," Pitzer said in an interview. Novellus's expected 24 percent order decline in the third quarter is evidence that the business isn't "bouncing along a bottom."
That view reflects a disparity on Wall Street about when the semiconductor industry will pick up. With chips in everything from greeting cards to cars, investors are watching for an industry rebound because it may signal higher corporate earnings and a rising stock market.
On Aug. 1, Merrill Lynch & Co said the worst may be over for the stocks and raised its rating on 19 chip and chip-equipment makers. CSFB countered the following week, saying that chip demand won't rebound for at least a year and that the stocks were selling for 20 percent to 30 percent more than they should.
The Philadelphia Semiconductor Index fell 7.1 percent this month and is down 2.4 percent this year. Shares of Novellus fell US$2.42, or 5.2 percent, to US$44.31.
Pitzer is now skeptical that Novellus can produce the 27 percent increase in orders necessary to meet its 2001 target. The company might even post a fourth-quarter decline in orders from the previous period, he said. Its customers include Intel Corp.
Pitzer, who rates Novellus a "hold," reduced his 2002 earnings estimate to US$0.26 a share from US$1.25 and his profit expectations for this year to US$1.33 a share from US$1.41.
Accounting rules changing how companies recognize revenue will also drag on profits, he said in the report. The Securities and Exchange Commission now requires companies to book revenue when customers accept a product, rather than when the companies ship it.
Current ``revenue reflects shipments that were made four to six months ago when business was relatively strong,'' Pitzer said.
Revenue figures early next year will be based on orders four to six months prior when business was worse, he said.
Pitzer has the lowest Novellus 2002 profit expectations on Wall Street. Earnings estimates for next year run as high as US$2.05 a share, according to Thomson Financial/First Call.
"It's a difficult environment out there given the slowing economy," said Christopher McHugh, who helps manage US$10 billion at Turner Investment Partners, which holds 800,000 shares of Novellus. Investors will have a harder time evaluating the company "given the wide range of estimates on Wall Street" and ``not knowing what is going to happen with bookings and backlogs,'' he said.
Pitzer, 33, is one of five of the 26 analysts who track Novellus that don't recommend buying the stock. Of 16 who published reports on Novellus today, only Robertson Stephens analyst Susan Billat cut her rating, to "buy" from "strong buy."
"Investors should take profits and not add to positions right now," Pitzer said, noting that he opted not to lower his rating to "sell" because he reduced it earlier this month.
"They will get better buying opportunities next year."
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