News from Japan: Tool firms sweating out dog days of summer

September 11, 2007 – Investors for several tool firms are sweltering more than usual during the “dog days” of summer, though sales are heating up for one prominent silicon supplier, according to a scan of the past week’s headlines in Japan.

Bottom-line stability, flat-line stocks

Low price-to-earnings ratios often mean stock-picking bargains, but new 10-year lows in the P/E of Tokyo Electron and Advantest suggest stagnation rather than undervaluation, notes the Nikkei Business Daily.

TEL is trading at about 14x projected group net profit for the fiscal year ending in March 2008; Advantest has a multiple of about 20x. Earnings seem to be more stable in the past few years, and orders are “at smooth plateaus,” the paper notes — TEL is projecting a 14% rise in this year’s profits to 104B yen, and has been cutting costs too. Demand for DRAM, flash memory, and logic chips have surged since 2004, “and this has led to a steady rise overall,” noted TEL president Kiyoshi Sato, quoted by the paper.

That stability may be great for the bottom line, but it also makes share prices “top-heavy,” explained Advantest president Toshio Maruyama. Investors actually prefer the severe market peaks/troughs, so they can more easily see when orders are slumping and thus identify buying opportunities. Chipmakers’ more flexible capital spending strategies — testing device sales are no longer strictly tied to surges in orders for wafer processing equipment — also are frustrating investors looking for deals.

What’s needed to capture investors’ interest again? “Shares in chipmaking equipment makers will face difficulties making a full-fledged rebound unless they attract the market’s attention with mergers and acquisitions,” noted Advantest’s Maruyama.

The subprime crisis in the US might play a role, too, the paper noted — if consumer spending starts to fall off, that will dent memory chipmakers and their equipment suppliers, and likely reveal investment opportunities.

SUMCO hiking profit outlook

Silicon wafer maker Sumco Corp. now expects better results across the board for sales and profits amid “brisk demand” for silicon wafers and contributions from a new division, notes the Jiji newswire. Sales outlook has been hiked by about 2% to 480B yen, and both operating and net profits are seen about 13% better than originally thought (at 136B yen and 74B yen, respectively). Net profits actually fell 22% in the first half of the fiscal year even though operating profits doubled and sales were up 75%, mainly due to costs incurred by liquidating subsidiary Sumco USA Corp.

Meanwhile, the company is planning to spend about 14.5B yen for a new plant in southwestern Japan to produce wafers for solar power systems. The site in Imari, Saga Prefecture, slated to open in 2009, will produce about 300,000 KW of annual power generation capacity, and if polysilicon supplies are stable it hopes to boost output to 1 million KW/year in 2010, capturing 10% of the market.

Perry keeps on the heat with lesser stake in NEC

Undeterred in its bid to cleave NEC Electronics (and its slumping stock price) away from its parent group, US Investment fund Perry Capital LLC has acquired more shares to boost its stake to 5.03% instead, according to the Nikkei daily.

Back in July Perry floated its offer to build a 25% ownership in the subsidiary, though NEC later said “no thanks” to the offer from its third-largest shareholder.

Nonetheless, Perry has bought another 6.2M shares in NEC Electronics for 22.2B yen — well below its original offer of 5000 yen/share for the 25% stake — and is expected to keep up the pressure on the parent company and investors to reconsider the current setup in which both companies are publicly listed, a situation the firm argues is dragging down NEC Electronics corporate value and share price.

Report: Advantage has inside track on Sanyo chip unit

Advantage Partners LLP may be given priority negotiation rights for the planned sale of Sanyo Electric Co.’s chipmaking operations, according to the Nikkei daily. At an auction on Aug. 31, Advantage reportedly swooped in with a 120-130B yen offer for wholly owned Sanyo Semiconductor Co., outbidding Longreach Group’s 110B yen offer, the paper reported. A deal could be finalized by the end of the month.

Fujitsu takes DRAM ruling over Nanya

A Tokyo district court has upheld Fujitsu Ltd.’s claims that Nanya Technology Corp.’s Japanese unit infringed its DRAM patents, according to the company and media reports.

Under the ruling, which caps a lawsuit filed two years ago, Nanya will be barred from future import and sales of the infringing products, as well as compensation for past infringement. The Nikkei daily reported that the court awarded 100 million yen (about US $872,000) in damages.

Fujitsu stopped making DRAM in 1999 but still owns key technology patents, noted the paper. Last year Nanya settled litigation with Renesas Technology Corp., which had sued it in Japan and the US also over DRAM patent infringements.


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