15: Semiconductor Equipment Overview

00:29am EST 20-Feb-02 Robertson Stephens (Billat, Sue AMAT KLAC

February 20, 2002

 

Technology Research

S e m i c o n d u c t o r   E q u i p m e n t   O v e r v i e w

 

January Book-to-Bill Inches Up to 0.81

 

Sue Billat 

Suresh Balaraman 

Heidi Poon 

Emma Park 

 

Investment Conclusion

January s flat bookings are consistent with our views that although  there  are

early signs of a recovery, a sustained upturn is likely  to  commence  only  in

2H:02.  Despite flat overall bookings,  we  believe  the  orders  for  sub-0.15

micron process tools continue to be strong. We are pleased that back end orders

have  rebounded  from  abysmal  levels  of  2H:01,  reflecting  the   drop   in

cancellations and improving utilization levels at packaging  and  test  houses.

Our current favorites remain Applied Materialsa (AMAT$45.80, Strong  Buy)  KLA-

Tencora (KLAC $58.47, Buy), Cabot Microelectronicsa,b (CCMP  $55.03,  Buy)  and

Rudolph Technologiesa,b (RTEC $38.25, Buy).

 

Key Points

* The January book-to-bill ratio of 0.81 is not fully comparable to  historical

  metrics, in our view, as SEMI has changed its definition  of  billings.  From

  now on, SEMI will use SAB 101 revenues rather than shipment as a  measure  of

  billings. While the difference is minimal for some  like  Applied  Materials,

  there could be a substantial impact in the case of most other  OEMs,  in  our

  view, due to the delay between shipment and revenue recognition.

* The three-month average  industry  bookings  inched  up  1%  sequentially  to

  $637MM, after a 7% increase in the previous month, resulting  in  a  book-to-

  bill ratio of 0.81, up from 0.77 in December (see  Figures  2  and  3  for  a

  summary of book to bill data). Overall billings declined 4%  sequentially  to

  $784MM, partly reflecting SEMI s switchover to SAB 101 revenues.

* Front end orders declined 6% to $507MM for the three months ending in January

  and fared worse than Applied s, which reported a flat bookings (and a book to

  bill of 1.0) in its January quarter. We believe Applied  is  benefiting  from

  its strength in Taiwan and products targeting 300-mm and copper. In addition,

  we note that Applied does  not  include  orders  from  Applied  Komatsu  (its

  Japanese subsidiary), Etec (which  is  not  categorized  under  semiconductor

  front end) or service orders in the number it  reports  to  SEMI.  Front  end

  billings declined 5% to $649MM, leading to a book-to-bill ratio of 0.78  (vs.

  0.79 in December).

* Back end equipment bookings surged 50% sequentially to $135MM, at  the  heels

  of a 45% in December. Given the substantial order improvement,  the  book-to-

  bill ratio leaped from 0.65 in December to 0.97 in January.  We  believe  the

  significant month over month gains reflect rising  capacity  utilization  and

  increased output from packaging and  test  subcontractors  compounded  by  an

  absence of back end equipment order cancellations. Although we expect  orders

  for the back end to remain at current levels for the next several months,  we

  note that the back end is a  leading  indicator  for  the  group.  Thus,  the

  positive signs from this segment bodes well for the industry overall, in  our

  view.

 

Figure 1: SEMI Bookings and Billings ($ in millions)

 

Source: SEMI

 

Figure 2: Semiconductor Equipment Bookings Trend Trailing Twelve Months ($

           millions)

 

Source: SEMI

 

Figure 3: Semiconductor Equipment Bookings and Billings ($ millions)

 

Source: SEMI

 

Our rating system is based upon 12-month price targets that assume a flat

market.

 

For stocks with market cap of $2 billion or greater:

Strong Buy describes stocks that we expect to appreciate by 25% or more.

Buy describes stocks that we expect to appreciate by 10-25%.

Market Perform describes stocks that we expect to change plus or minus 10%.

Market Underperform describes stocks that we expect to decline by more than

10%.

 

For stocks with market cap of less than $2 billion:

Strong Buy describes stocks that we expect to appreciate by 50% or more.

Buy describes stocks that we expect to appreciate by 20-50%.

Market Perform describes stocks that we expect to change plus or minus 20%.

Market Underperform describes stocks that we expect to decline by more than

20%.

 

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