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Chip equipment stocks fall on profit woes

Two semiconductor equipment makers warn in the past 24 hours, and analysts are saying that the worst may be yet to come for the sector.

Two semiconductor equipment makers warned in the past 24 hours, and analysts are saying that the worst may be yet to come for the sector.

Teradyne was down $3.15 to $35.00 and Asyst Technologies fell 53 cents to $15.95 in early trading Wednesday after delivering bad news to investors. CNET's semiconductor capital equipment index was down more than 3 percent. A report stating that the semiconductor industry is facing its worst annual downturn, according to new figures from IC Insights, may have helped to drive shares lower.

Teradyne announced Tuesday night that its second-quarter sales and earnings would miss forecasts. Revenue is now predicted to come in at $350 million to $375 million, much less than the $425 million to $450 million the company had forecast.

The company's loss in the second quarter is now expected to be 5 cents to 10 cents a share, much steeper than the penny a share loss expected by First Call. That loss includes the benefit from a pending sale of Teradyne's military connections business, but not special charges, which are expected to total 15 cents to 20 cents a share, the company added.

This will be the company's first loss since 1991, an indicator of just how deep and wide the current downturn is, according to CEO George Chamillard in the company's statement.

Teradyne makes systems for testing semiconductors--for about two-thirds of its sales--and products to analyze the performance of circuit boards and telecommunications equipment. Poor business conditions this quarter have led to deterioration in every segment of its business, the company said.

The company has already taken measures to cut expenses, including a 12 percent reduction in employees since the beginning of 2000. The company said that the reductions so far aren't enough to allow it to stay profitable, but it is reluctant to cut deeper for fear of losing customers or falling back in R&D programs.

Most analysts maintained their strong ratings on the company despite its warning, which they said has been long anticipated.

Goldman Sachs analyst Gunnar T. Miller sounded a more pessimistic note, and predicted that because Teradyne stock has risen 20 percent in three months, "shares will give back recent gains as investors come to grips that this is not shaping up to be a semi-equipment downturn of short duration."

Asyst Technologies, another player in the semiconductor equipment sector, said it expects revenue for the first quarter ending June 30 of $65 million to $70 million, below an earlier forecast of $75 million.

The company also said it will take an operating loss for the quarter. First Call had been predicting a loss of 19 cents a share.

"The current operating environment is a challenge for Asyst as well as for the semiconductor industry as a whole," said Mihir Parikh, chairman and chief executive officer. "For Asyst, this has resulted in ongoing pressure on bookings and backlog, and our visibility continues to be limited."

The company also said gross margins for the first quarter will be in the range of 25 percent to 28 percent of revenue.

The company added to the bad news in a filing with the Securities and Exchange Commission that said it is calling off plans for new corporate headquarters in Fremont, Calif., though it had already bought land for the building.

Analysts expect this will result in a large write-off for the company. Due to recent declines in the real estate market in Fremont, the company believes that the current fair market value of the land is substantially less than the original purchase price. The size of the charge has yet to be determined.

The company's "outlook remains bleak," said Tucker Anthony analyst Gerald Fleming, who reiterated a "market underperform" rating on the stock Wednesday.

More pre-announcements can be expected in the next few weeks, said Deutsche Banc Alex Brown analyst Timothy Arcuri. "Teradyne's pre-announcement last night makes this obvious," wrote Arcuri. But something which is less apparent is that expectations that the sector would hit their lows in the first calendar quarter--backed by other equipment makers Lam Research and Novellus--may be shattered. There is a "high likelihood of negative news in the way of pre-announcements from upstream players," Arcuri said, referring to companies such as Novellus.

ABN Amro analyst Nikolay Tishchenko predicts semiconductor test equipment sales will bottom in the third calendar quarter, bringing the sector to a 70 percent decline for the calendar year.

In other semiconductor news Wednesday, Infineon Technologies said its quarterly results will fall short.

The company, which makes semiconductor applications in industry, automotive, computing, and communications, expects a revenue decline of up to 30 per cent in the current quarter, compared with the previous quarter, and a loss before interest and income taxes of up to 600 million euros, or $517 million.

The company said third-quarter results will be hurt by price erosion and by one-time charges related to inventory write-downs.

On a conference call with analysts Wednesday morning, CEO Ulrich Schumacher commented on the swift nature of the recent downturn. Infineon had been unable to keep up with the demand of one unnamed customer for several quarters, only to have that company's orders go to zero in the span of a week, the CEO said. "Demand has been much weaker than expected, Schumacher said.

The company said all areas of its business, including the DRAM, wireless and wireline communications business groups, have seen order cancelations and heavy price pressures.

The company has already made significant cutbacks to spending this year, slashing its planned capital expenditures from 2.8 billion euros, or $2.4 billion, to about 2.3 billion euros, or $1.98 billion.

For fiscal year 2002, Infineon intends to reduce the level of its previously planned capital expenditures by more than 1 billion euros, or $86 million.