Novellus stands by its projections

In a mid-quarter report delivered Thursday, the maker of chip-manufacturing equipment stuck to its earlier prediction of earnings of 40 cents per share on second-quarter revenue of $379 million.

In their forecasts before today's release, analysts were more cautious. First Call's consensus estimate called for a profit of 39 cents per share on revenue of $357 million for Novellus' second quarter ending June 30.

"We're going to make our earnings number," said Richard Hill, Novellus' chairman and CEO.

Shares of Novellus traded at $48.88 in after-hours activity on the Island ECN after the report. They increased $1.40 to $47.90 in Thursday's regular trading ahead of the news.

Novellus executives also repeated their previously stated projections for orders. The company expects bookings of $220 million in the second quarter and $1 billion for the entire fiscal year.

"As we get farther and farther into the year and we see no signs of increase in that end-consumer demand, we may come back to you and revise this number," Hill said. "But at this time, it's as good of a look as we have."

New bookings in the second quarter have been slightly higher than the company expected. Novellus has not adjusted its original projection of $220 million in bookings; it expects to hit that figure despite the fact that $15 million in orders were canceled this quarter.

Most analysts expect few surprises from Novellus. The latter half of the fiscal year is more important, Deutsche Banc Alex Brown analyst Timothy Arcuri wrote in a research note released Thursday morning.

Chipmakers have already reduced their capacity as much as possible, Arcuri said. "It should be clear there is precious little capex (capital spending) left into which to cut," he wrote. "We thus see Q2 orders as essentially irrelevant, and continue to maintain that fundamentals are aligning to make Q4 (December) the real swing factor."

Company executives remained cautious about the rest of the year, even though Novellus' larger rival, Applied Materials, recently predicted an improvement in orders later this year.

"I have to say that we don't see it at this time," Hill said of Applied Materials' expectations. "But we certainly hope that they are correct."

Until demand increases for PCs, servers and other systems, Novellus' forecasts will stay conservative, Hill said. As recently as Wednesday night, Novellus customers have delayed installation of equipment for 300-millimeter wafers, which are supposed to be the future of semiconductor manufacturing.

"Overall, there's really no good news at this time," Hill said. "All the regions are down. Most of the foundries, their capacities remain at 50 percent or below."

Novellus' skepticism about the second half of the year doesn't bode well for the industry, said Mike O'Brien, an analyst with Wit SoundView.

"They actually sounded a bit more pessimistic than they were during their last earnings call," O'Brien said. "I've always found Rick Hill to be one of the most optimistic CEOs out there...Today he was more negative than I'm used to."

Hill's comments on Thursday make it clear that Novellus doesn't necessarily believe it will actually hit its stated target of $1 billion in bookings for the year, O'Brien said. "They basically backed away from that order number," he said.