NVLS mid-Q: “Modestly low,” not much change

June 2, 2008 – Novellus Systems execs last week laid out their midquarter business views in an analyst presentation, saying business hasn’t really changed much in the past two months, still “weak” but not as bad as historically worst-case. In general, signs still point to a rebound in foundry and memory investments later this year or 2009.

Guidance remains unchanged: Bookings down 10%-20% Q-Q, Shipments down 17%-25%, Sales about $245M-$260M, gross margins ~46%, and breakeven EPS to a -$0.06/share loss. (The transcript can be viewed at SeekingAlpha)

“I would describe the US as weak, Japan weak, Korea weak, basically all geographical regions as weak,” said chairman/CEO Richard Hill, which he described as “selective filling out of capacity for expansion but no major expansions […] and also selective technology buys.”

During Q&A session after the quick presentation, Hill answered one analysts’ query about the fairly wide bookings guidance for so late in the quarter. “If I were going to tighten the ranges I would probably be a little bit more optimistic, but I chose not to be,” Hill remarked. “I try to keep it as wide as possible so we don’t disappoint you.”

Hill reiterated his view that sustained utilization rates (overall just under 94%, according to the latest SICAS figures) suggest foundry investments should picking up. “We’re a little bit surprised that [the foundry segment] hasn’t rebounded sooner than it has,” he said, pointing to general expectations of a rebound to come in 2H08. “But it’s very, very difficult to forecast as they’re using extremely good discipline in controlling their capacities.

Also, Hill expressed confidence that “on a selective number of memory manufacturers you will begin to see increased capacity expansion there as well, both for DRAM and for flash.”

Prompted to project a capex rebound, Hill noted foundry utilization rates and a firming DRAM market, saying the combination suggests “that we will shortly pass a point where there will be a shortage of supply,” followed by further price and profit hikes, “and as a result the profitability should come back to these businesses and we should see a resumption in capital expenditure. It would be hard to conceive that that wouldn’t occur in 2009, if not earlier.”

Turning toward internal metrics, Hill noted that Novellus expects to post about $110M OpEx run-rate exiting the current (June) quarter, and held there even if revenues scale up to ~$400M — though despite prompting from analysts he wouldn’t say how this OpEx level would be maintained while growing revenues. “I guarantee you it won’t scale this time around [equal to revenue growth],” he said.


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