Novellus cuts sales forecast: but company sees business IT spending up slightly in Q3 - News

Electronic News, Sept 2, 2002 by Jeff Chappell

Novellus Systems Corp. lowered its guidance for the current quarter late last week, saying that Q3 bookings will be about $220 million and as low as $200 million.

The copper tool deposition giant said it experienced significant order push-out from two major customers just within the last several weeks. Up until that point, orders for the summer months were pretty good, said CEO Rick Hill in a conference call with financial analysts.

It seems to be the first hard evidence among semiconductor equipment suppliers that the summer slowdown may be more than seasonal doldrums and indicative of an impact from larger macroeconomic problems.

In July Novellus had forecast net bookings of $250 million for the quarter. Hill said shipments for the quarter will likely be about $245 million for the quarter, compared to the projected $260 million, due solely to the order push-outs. The company expects earnings for Q3 to be flat at around $230 million versus the projected $250 million, or 2 cents per share, it had previously predicted.

"What I see in the industry right now is a scarcity of capital on the part of the semi industry as a whole," said Hill, who recently returned from a trip to Asia.

Novellus has seen $15 million in cancellations during the quarter. The company does have a substantial number of bookings for September, but Hill said he couldn't predict if more cancellations were to come. "The reality is that visibility is very, very murky.... The general feeling tends to be negative rather than positive," he said. "The guidance on bookings...does have a little flavor of gloom and doom from the standpoint that I'm cautious after talking to customers."

The push-outs were 300mm-related and came from Asian customers, Hill said. But they did not come from the leading 300mm players, as one would perhaps expect, given recent capital investment announcements from the likes of Taiwan Semiconductor Manufacturing Co. (TSMC). Rather, the push-outs came from smaller chipmakers that recently "stepped off the sidelines" in terms of adding 300mm capacity, Hill said.

The 300mm conversion requires significant capital investment, and chipmakers are worried about adding capacity only to have it sit idle in the short-term, Hill pointed out. Those customers that already have begun to switch to the larger wafer size are seeing a cost advantage already.

Meanwhile, the cancellations are coming from older-generation, standard aluminum interconnect technologies, particularly at 0.18-micron geometry and larger. But Novellus has not seen order cancellations or push-outs for advanced copper and low-k film technology. In fact, it has seen a slight increase in orders for copper/low-k, 200mm wafer capable tools, Hill said. Capacity utilization for 0.13-micron technology remains very high, he added.

The Big Picture is Murky, Too

Novellus' lowered guidance provides the first concrete evidence amid anecdotal evidence that the semi-conductor industry is experiencing more than a seasonal dip in orders and, hence, revenue, on Lop of mixed messages in terms of the macroeconomic economy.

Hill observed that the industry currently is seeing a slight improvement in business IT infrastructure spending, even as consumer spending on electronics, particularly in the video game console market, has slowed. Figures released by the federal government last week seem to back up that observation.

First off, the U.S. Department of Commerce confirmed quarterly gross domestic product (GDP) figures for Q2, revealing that the GDP contracted to just 1.1 percent after a staggering growth of 5 percent in Q1. Meanwhile, the U.S. Department of Labor last week said first-time claims for unemployment benefits grew by 8,000 to 403,000 the week of Aug. 24.