This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Novellus Undone by Merrill Downgrade

On the conference call, analysts peppered Novellus management with questions about whether customer demand for new equipment may peaking out. "Right now, our best visibility is we don't see the downturn," said Chief Financial Officer Kevin Royal, adding Novellus has "fairly good visibility through the third quarter" and that he remains "cautiously optimistic." He said the company is on track to exceed its 2000 peak in revenue and bookings.

Royal said he'd get nervous if he saw a decrease in industrial spending. But so far such buying has only continued to accelerate -- albeit at a more modest pace than in the past, reflecting what he called "rational deployment of capital."

Unlike the heady days of the late 1990s, when capital markets offered companies a seemingly endlessly supply of easy cash to spend, they must now finance spending out of their internal operations, he said. That's made companies more cautious about expanding capacity; rather than install a whole semiconductor factory in one go, they're currently more likely to add capacity gradually, in three or four phases. "We're not getting immediately into an overcapacity situation," Royal said.

"I believe because actual supply and demand are more closely mapped together, the downturn will be less severe," he said.

On a geographic basis, Japanese customers are currently pushing much of the growth in the equipment industry, followed by Chinese suppliers, the company said. As for end markets, Novellus sales have benefited from the high demand for digital consumer electronics and the expansion of applications for flash memory, along with a generally improved industrial investment on computing, management said on the conference call.

Novellus reported second-quarter shipments of $366.1 million, representing a sequential increase of 17.7%, while deferred revenue rose 18.2% from the first quarter to $181.1 million at June 26, 2004. The company's gross margin was 50.5% in the most recent quarter, up from 44.1% in the year-ago period. Total operating expenses were 34.5% of sales in the 2004 period, compared with 42.2% a year ago.

"Bookings are strong and we continue to experience operating leverage to drive superior financial results for our shareholders," the company said in a statement. "Novellus is experiencing further strengthening of its 300-millimeter market penetration, particularly in advanced copper applications, due to our technological excellence and a continued focus on productivity."

Novellus bought back 5.5 million shares during the quarter for $167.1 million.

2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs