semiconductor equipment maker Novellus Systems Inc ( ) posted disappointing margins and a wider than expected loss, but a robust forecast helped limit share losses in late trade. I don't follow NVLS closely but I am sure if I pulled the report from last quarter it would be almost identical to what is said above... "bad results, stable forecast - green shoots". Similar to CSX, if you are wrong in your happy talk, just repeat it again for the next quarter. Eventually a broken clock will be correct.

• Many investors had bet on a gradual recovery in the chip sector and a bounce in profits for players such as Novellus. Analysts had hoped for Novellus, which competes with larger rival Applied Materials Inc ( ), to report fatter margins in line with cost-cutting and a market recovery. "The margin actually came in a little weaker than what people were thinking," said Needham & Company analyst Edwin Mok. "People were expecting the margin to expand sequentially from last quarter to this quarter but it did not."
• "Expectations were clearly that they would be at the high end of guidance or even beat the guidance," he said.
• Novellus Chief Executive Richard Hill said on a conference call he expected revenue of $150-180 million in the third quarter, down 30 to 42 percent from a year ago but sharply better than a 54 percent dive in second-quarter turnover to $119 million, year on year.

So sales are cut in half this past quarter; a quarter I am sure 90 days ago they were saying would be better than the 1st quarter. Again, keep selling the hope - and now we say 3rd quarter will only be down (what a huge range) anywhere from 30-42%, which will be quite the improvement from 54%. Green shoots.

• Novellus reported a net loss of 52 cents per diluted share in the quarter ended June 27. But excluding items such as a $15.9 million charge for workforce reductions and scaling back parts of its business, Novellus reported a loss of $39.3 million, or 41 cents a share. Analysts on average had expected a loss of 38 cents a share, according to Reuters Estimates.

Translation. We lost a lot of money. Even when you exclude the 1x charges for firing a lot of people that only in American accounting "don't count", we still missed analysts expectations. Thankfully, 1x charges never hurt earnings in PE ratios because again - they don't count. That said, we were not profitable anyhow, so it's a moot point. But just wait until we are profitable... next quarter. Or the one after that. Or the one after that... just buy stock.

• Excluding certain items, Novellus posted a gross margin of 32.4 percent, in line with the company's outlook. But on a GAAP-basis, Novellus reported second quarter gross margins of just 26 percent -- matching its first quarter result.

For those not in the know GAAP is what accountants would use if we took this all seriously. Instead to inflate stock prices, we exclude many things that hurt profits and hence can claim stocks are much cheaper than they are. That's what happens when you can exclude so many charges as "pretend"... also part of the reason so much executive compensation is in stock options; in non GAAP they don't count. And almost all analysts now use non GAAP.

But that's a whole different entry - we went in depth on that subject here (Apr 24, 2009: Operating Earnings v As Reported Earnings). Just be aware that as we talk up PE ratios almost all American companies are vastly understating their expenses (hence overstating profitability) as we use non GAAP figures, both by the companies and the analyst community. That's what you have to do when you have a bevy of flaccid companies throughout the dynamic, innovative economy. Have to justify those bonus and option payouts.

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Anyhow, bottom line - we're all happy here. NVLS and CSX are up - the all knowing market has spoken. Buy stocks, the recovery is here... the CEOs said that 3 months ago as well. They were wrong. But they mean it this time. Expect the same song and dance among another couple hundred companies in the weeks to come.