Soitec, analyst chide customer rumors, underscore sales growth projections

October 9, 2006 – Silicon-on-insulator (SOI) wafer manufacturer Soitec, Bernin, France, says it expects to achieve its previous guidance of about 400 million Euros (?1 = US$1.25) in sales during its 2006-2007 fiscal year, representing about 50% annual growth. The company noted the anticipated sales growth is the result of regular updates to existing customer contracts, and also denied rumors concerning the loss of an American customer.

Bill Ong, analyst with American Technology Research, noted that the rumors of lost share with a major US chip customer — as well as rumors that a dissatisfied major Japanese customer will not incorporate the SOI process on its next-generation node — appear to be false, and based primarily on common discussions among technologists regarding the pros and cons of any new technology.

“Past controversies included dismissing CMP (chemical mechanical polishing) as the high levels of particle defects would have a detrimental impact on die yield,” he wrote in a research note, and “while copper interconnects are widely used over aluminum interconnects […] a number of chipmakers were reluctant to incorporate copper into their existing fabs for fear of process contamination.” Ong also dismissed a stock downgrade from a French boutique firm as due to “an analyst with aggressive margin assumptions,” and that model “was being misrepresented as a management guide-down.”

Ong pointed out that Soitec’s R&D expenses are expected to increase to about 7%-8% of sales, in order to support the July acquisition of TraciT Technologies and plans to ramp its nanoSMART product. Gross R&D is typically in the 11%-12% range, but that is offset by various credits now being phased out, Ong pointed out, so Soitec’s operating expenses should increase to support a large product line.

“We believe SOI technology adoption remains on track and we remain comfortable with Soitec’s ability to achieve a 35% CAGR over the next several years,” Ong stated, though reducing his estimates for EPS. “However, given its expected FY07 revenue growth rate of 52% Y/Y and earnings continuing to accelerate as the company recently turned profitable a year ago (September 2005), we believe a 35x P/E on 0.85/euros CY07 for a 30-euro price target continues to have substantial upside opportunity for the stock.”


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