When we recently sat down with Zacks senior semiconductor industry analyst
Ken Nagy, CFA, we were interested in finding out what the positives were in the outlook on the semiconductor industry. What we got was that, plus some timely Buy and Sell recommendations.
The semiconductor industry looks to be gaining some traction near-term. What Buy recommendations do you have for us at this time.
Perhaps I can best answer this question by citing the most recent Buy report on which I have issued a Buy report -- ASML (ASML). ASML is the largest OEM [original equipment manufacturer] of advanced photolithography systems used within the semiconductor manufacturing industry.
June quarter revenue and EPS outperformed consensus estimates. The company has the leading position in the next generation immersion lithography tools, which will lead to long-term growth.
The firm is managing weakness in the markets by cutting SG&A [selling, general and administrative] and R&D [research and development] expenses. Looking ahead to 2009, management expects a positive tail wind, given the DRAM ramp-up of 55 nanometer, the healthy revenue growth at foundry customers, and the transition to double patterning lithography by flash memory leaders.
In what ways is ASML a market leader?
Well, the company is the world's leading provider of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of integrated circuits or chips. ASML feels the industry will require different architectures for each sub technology.
The company plans to make 20-30% of this spending flexible so during downturns it could scale back. The company also has two EUV tools it plans to ship this quarter. This speaks to technology leadership.
ASML's 193nm introduction is unlikely to face competition, at least in the near-term. In addition, the used equipment market is also improving, with tier II customers increasing their capacity by adding 200mm tools. The 200mm tools have better gross margins than the 300mm products, since these products are newer.
Is there another semiconductor recommendation you would make for us today?
ON Semiconductor (ONNN) is an OEM of primarily analog semiconductors used within a diverse set of end markets. On August 6th, the company announced the total revenues in the second quarter of 2008 was a record $562.7 million, an increase of approximately 33% from the first quarter of 2008.
