Novellus, chip-equipment stocks drift lower

Novellus Systems led semiconductor-equipment stocks lower Wednesday after a Prudential Securities analyst said the company might water down order estimates for its first quarter during its mid-quarter analyst meeting Thursday.

Novellus (Nasdaq: NVLS) shares fell $2.75, or 7 percent, to $37.56.

Prudential's Shekhar Pramanick said he expects the company to maintain its sales guidance for the quarter but warned that "there could be some downside risk."

Novellus and other chip-equipment stocks have taken a beating of late on concerns that Intel (Nasdaq: INTC) may scale back its capital equipment spending this year.

Last quarter, the chipmaking giant told analysts it would spend $7.5 billion for new equipment in fiscal 2001. But the deteriorating economic climate and massive inventory corrections throughout the industry have forced analysts to lower that figure to somewhere in the neighborhood of $5 billion.

Intel said last week that it would cut discretionary spending for overtime, travel and consultant work but left its capital expenditure budget unchanged.

"Intel's announcement certainly surprised everyone," said Chris Chaney, an analyst at A.G. Edwards, in January. "But to stay on the leading edge, these companies realize they need to keep investing, especially in copper and 300mm tools."

In fact, the magnitude of Intel's commitment to capital expenditures this year was so surprising that at least one analyst didn't believe it.

CS First Boston's Charles Glavin said terrible visibility in the sector combined with pricing pressures and the weak economy make the $7.5 billion figure hard to believe.

"We do not believe Intel will actually spend the shockingly high $7.5 billion capex (capital expenditures) it projects for 2001," he said in a research note. "None of the major (equipment) suppliers seem to believe it--even for 0.13-micron and 300mm. We believe Intel will re-evaluate the market and its products before committing the majority of this."

Glavin said $5 billion, plus or minus $1 billion, is far more realistic.

Meanwhile, chip-equipment stocks continue to fall in lockstep with the rest of the technology sector.

In early afternoon trading Wednesday, Applied Materials (Nasdaq: AMAT) fell $2.19 to $42.81, while Lam Research (Nasdaq: LRCX) and KLA-Tencor (Nasdaq: KLAC) dropped $1 and $4.13 a share, respectively.

In its fourth quarter, Novellus hurdled analysts' estimates when it posted a profit of $104.4 million, or 76 cents a share, on sales of $425.1 million.

First Call consensus expects it to earn 67 cents a share in the first quarter.