Lam Research falls on downgrade

Lam Research shares fell 6 percent Thursday on the heels of its profit warning. Analysts handed out downgrades and cut estimates for other chip-equipment makers for good measure.

Shares of the company slipped $1.31, or 6 percent, to $20.19 in early trading. Lam Research is one of the top providers of semiconductor equipment worldwide. Chip-equipment stocks have taken a beating of late on concerns that Intel (Nasdaq: INTC) may scale back its capital equipment spending this year.

The news from Lam Research caused a ripple through the sector, as Goldman Sachs cut earnings projections for Novellus Systems (Nasdaq: NVLS), down $3.06, almost 8 percent, to $35.56, and KLA-Tencor (Nasdaq: KLAC), off $2.75, or 7 percent, to $33. Applied Materials (Nasdaq: AMAT) fell $1.13 to $41.13.

Lam Research, based in Fremont, Calif., makes semiconductor-manufacturing equipment used to create integrated circuits.

After Wednesday's market close, Lam Research (Nasdaq: LRCX) warned that it will not meet analysts' sales estimates in its third quarter, citing lagging orders from chipmaking customers.

Lam officials also said that the company will take five mandatory shut-down days each quarter and company executives will take a 10 percent pay cut.

Analysts reacted to the news with a flurry of estimate reductions, along with a downgrade at Robertson Stephens.

Analyst Susan H. Billat at Robertson Stephens cut Lam Research to "buy" from "strong buy" and lowered 2001 estimates.

In her research note, Billat said the ratings cut was due to valuation concerns. At over 26 times and 22 times Robertson Stephens' fiscal 2001 and fiscal 2002 numbers, respectively, the analyst wrote, "Lam Research does not represent as good a value as some of the other names in our space such as Applied Materials and Novellus, in our view."

At Goldman Sachs, analyst Gunnar T. Miller cut estimates on Lam, Novellus and KLA-Tencor, to reflect a projected 20 percent to 27 percent dip in revenue for the major companies in the space. Miller previously adjusted his numbers on Applied Materials.

"We continue to believe that the stocks will once again test October 2000 levels as we see continued negative news flow in the form of additional pre-announcements from the equipment companies themselves, customer pre-announcements and (capital expenditure) reductions, and a continued soft macroeconomic environment," Miller said.

Among other brokerages lowering estimates on Lam Research, the Credit Suisse First Boston lowered earnings numbers for 2001 and 2002, Eric Ross at Thomas Weisel and Partners reiterated a "buy" rating while lowering 2001. At SG Cowen Securities, the stock was reiterated at a "buy" rating and numbers were slashed for 2001 and 2002.