Novellus Raises Guidance

Novellus Systems (NVLS) raised its fourth-quarter revenue and earnings outlook, as a result of the ongoing recovery in the semiconductor market.
 
The company now expects revenues of $225-245 million, compared to previous guidance of $215-245 million, which raises the mid-point from $230 to $235 million.
 
Management had previously guided to bookings increase of 25-50%, which were not subsequently revised. Therefore, we assume that bookings are expected to remain within this range.
 
GAAP gross margin expectations were also not revised and remain in the 44-47% range.
 
EPS expectations were raised to 25-40 cents from previous guidance of 20-40 cents. The Zacks Consensus Estimate for the fourth quarter is pegged at 31 cents, close to the middle of the revised range.
 
The company’s third-quarter earnings beat the Zacks Consensus Estimate by a penny. Order momentum, stronger DRAM and NAND prices, higher volumes, higher utilization rates and a lower cost structure contributed to the better-than-expected results.
 
The computing and smart phone markets drove strength in the third quarter and are expected to drive fourth quarter results as well.
 
The company generates the largest chunk of revenues from the Asia Pacific region, followed by North America and then Europe. We expect the Asia Pacific region to remain strong in the next quarter, as the strength in DRAM and NAND prices continue. Last quarter, revenues from the region increased double-digits both sequentially and year over year. We also expect improvement in both North America and Europe.
 
Not only Novellus, but other equipment makers such as ASML Holdings (ASML), Applied Materials (AMAT) and KLA Tencor (KLAC), microprocessor makers such as Intel (INTC) and Advanced Micro Devices (AMD), and analog makers such as Linear Technology (LLTC), Maxim Integrated Products (MXIM), Intersil Corp (ISIL) and Semtech (SMTC) reported stronger results in the last quarter.

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