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Analysts cut KLA-Tencor estimates

Analysts revise earnings estimates for the semiconductor equipment maker in the wake of the company's fiscal third-quarter profit warning.

Analysts revised earnings estimates for semiconductor equipment maker KLA-Tencor in the wake of the company's fiscal third-quarter profit warning but said the company can work through an economic slowdown.

KLA-Tencor said Monday that revenue for the quarter would drop 8 percent to 10 percent below previous guidance of $570 million to $580 million. It did not provide an estimate of earnings per share but said earnings excluding non-recurring charges will fall short of the previous target of 58 cents per share.

KLA-Tencor makes tools that identify defects in semiconductors during manufacturing. The company therefore sees its fortunes rise and fall with the chip industry, which has been struggling of late.

Several analysts said KLA-Tencor is in a better position than competitors such as Applied Materials, which announced last week that it would trim its work force by 4.5 percent to cut costs. That firm had already announced salary cutbacks and planned a five-day shutdown at its plants.

Intel previously announced that it would suspend a $2.2 billion expansion of its Ireland chip plant until 2002 because of semiconductor woes.

"KLA-Tencor derives a higher percentage of its revenues from leading-edge technologies relative to the average semiconductor equipment company," wrote Lehman Brothers analyst Edward White in a research note. "While the company is not immune to the industrywide slowdown, we think it will do better than most others given the current environment."

White dropped 2001 earnings estimates from $2.06 to $1.80 a share, and 2002 estimates from $1.75 to $1.25 a share. He maintained his "strong buy" rating on the stock. Credit Suisse First Boston John Pitzer noted that "when cyclical trends begin to bottom...KLA-Tencor would be one of the first names to return to."

Pitzer lowered earnings estimates for 2001 to $1.80 a share from $1.85, and lowered his 2002 outlook to $1.05 from $1.35. He set a 12-month target of $50 for the company's shares.

Not everyone was convinced, however.

Robertson Stephens analyst Sue Billat, who lowered the stock from "buy" to "long-term attractive" wrote in a research note that the company is facing increased competition from Rudolph Technologies and Applied Materials.

"As a result...we believe KLA's market share, though still dominant, is declining," she wrote.

Billat dropped 2001 earnings estimates from $2.11 a share to $1.83 a share and set a new 2002 earnings estimate of $1.12 a share.

Shekhar Pramanick at Prudential Securities maintained an "accumulate" rating, and set a 12-month target price of $40. He cut fiscal 2001 earnings estimates to $1.80 from $2.10 a share.