Orders Worry KLA-Tencor Investors

The stock trades down about 5% despite solid first quarter.

Author:: Diane Hess
Publish date:: Apr 18, 2002 3:47 PM EDT

KLA-Tencor

was trading down more than 5% on Thursday, after the chip-equipment maker disappointed investors by saying it expects orders to be up only 10% in the fourth quarter.

"The equipment stocks trade on orders, and the market didn't like KLA-Tencor's guidance," said Shekhar Pramanick, an analyst at Prudential Securities. "But I think they were being conservative in their estimates, and I am confident that orders could be up as much as 20% quarter over quarter."

In the meantime, KLA-Tencor was off $3.73, or 5.43%, at $64.93; it's up 31% so far this year.

Historically, KLA-Tencor has underestimated its bookings growth. For example, it said orders would increase 10% in the third quarter, where they were actually up about 35%, according to Pramanick.

"I think the June quarter will shape up equally well," said Pramanick. But he added: "The big question is whether or not their orders are incrementally smaller than those of their peers."

KLA-Tencor was able to ramp up bookings in the third quarter, due to strength in Taiwan. It ended the quarter with a book to ship ratio that exceeded 1 for the first time in five quarters.

"Although our recovery is still not broad based, we did receive orders from a number of leading chipmakers eager to reserve production slots," said Ken Schroeder, CEO of KLA-Tencor, in a statement.

In the third quarter, KLA-Tencor earned $34 million, or 17 cents a share, topping analysts' estimates by 2 cents. But the results were down 75% from $136 million, or 71 cents a share, a year ago.

Revenue fell 42% to $357 million from $618 million last year, but was also above estimates.

"The demand for increased capacity in the most advanced technology segments resulted in both customer pull-ins and incremental orders over our original forecast," said Schroeder.

In the fourth quarter, KLA-Tencor expects sales between $355 million and $365 million, vs. estimates for $345 million, and earnings between 18 and 20 cents a share, compared to forecasts for 17 cents.