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Tough '09 awaits fab-tool, materials sector

Posted: 09 Jan 2009 ?? ?Print Version ?Bookmark and Share

Keywords:fab-tool? electronics material sector? rough 2009 market?

Based on the early returns, the fab-tool and electronic materials markets are off to a rough start in 2009.

And don't expect the market to improve, prompting the possible acceleration of a shake-out in the sector. Rumors are rampant that Novellus Systems Inc. could be on the block, while Aviza Technology Inc. said that it is reviewing its "financial and strategic options."

In addition, Japan's Tokyo Electron Ltd (TEL) recently postponed the construction of a planned manufacturing plant. Aehr, Cabot and CyberOptics also issued warnings for Q4 08. And Taiwan's Advanced Semiconductor Engineering Inc. (ASE), the largest IC-assembly house, said its Q4 08 sales hit NT$18.307 billion ($554.2 million), down 29.1 percent sequentially and down 36.8 percent y-on-y.

Times are bad in the sector, which faces another downturn. Applied, Axcelis, Cognex, Entegris, FSI, Intevac, KLA-Tencor, Lam, Mattson, Micronic, SemiTool, Tegal and other fab-tool makers have recently announced layoffs.

Semiconductor equipment spending is projected to decline 30.6 percent in 2008 and another 31.7 percent in 2009, according to a revised forecast issued by market research firm Gartner Inc.

The economic recession and supply-side issues will drive semiconductor manufacturers into "panic mode" for Q1 09, cutting capital spending even more deeply than 2008, according to Gartner. In October, Gartner projected that chip capital spending would decline 25.2 percent this year and 12.8 percent in 2009.

Amid the current downturn, the shake-out could accelerate in the sector. CNBC reported heavy trading activity for Novellus, saying rumors of a Novellus takeover are circulating on the trading floor. The CNBC report does not speak to the details of the rumor. Earlier this week, Credit Suisse analyst Satya Kumar reportedly cut his rating on Novellus' stock to "underperform" from neutral.

Rough front-end
In a separate event, Aviza, a supplier of semiconductor equipment, has retained Needham & Co. LLC to assist the company in reviewing its financial and strategic options.

Aviza also expects that net sales for Q1 09 will be at the low end of the original guidance range of $25 to $32 million. However, Aviza expects that adjusted net income for Q1 09 will be in the range of $1 to $4 million, an improvement over the original guidance range of $50,000 to an adjusted net loss of $4 million. The improvements were a result of the faster impact of cost reduction measures and favorable currency exchange translation.

"We believe the results of our December quarter will reflect our ongoing efforts to improve our financial performance in the face of an extremely challenging macroeconomic environment. We are pleased that we've been able continue to decrease operating costs while maintaining our focus on our served markets with our single-wafer products," said Jerry Cutini, president and CEO of Aviza, in a statement.

"Additionally, we've decided to engage Needham & Company to assist us in evaluating our financial and strategic options," he said. "We are looking forward to working closely with them as we move through a very difficult and unpredictable economy. Aviza and Needham & Company have a long history of working together and more importantly, they have a significant depth of experience in the semiconductor capital equipment industry."

Others are also seeing tough times. Last month, TEL announced it would postpone the construction of a planned manufacturing plant in Japan. The facility, slated for Taiwa-cho in the Miyagi Prefecture, was to begin construction this April and be completed by April 2010. But, citing market conditions, TEL said construction would be postponed "until there is a prospect that the semiconductor and [semiconductor production equipment] markets will recover in the near future."

Meanwhile, in response to the difficult operating environment, CyberOptics Corp. reduced its workforce by approximately 10 percent in November.

CyberOptics is also reducing its financial guidance for Q4 08, to a net loss of approximately $0.32 to $0.34 per diluted share, before non-cash impairment charges for goodwill and long-lived assets, on sales of roughly $6.5 million. CyberOptics' previously-issued guidance for this period forecasted a net loss of $0.16 to $0.21 per diluted share on sales of $8.5 to $9.5 million.

The Q4 non-cash impairment charges, which are forecasted in the range of $4.0-to-$5.0 million, were triggered primarily by the decline in CyberOptics' market capitalization.

Sales of both electronic assembly sensors and inspection systems were below forecasted levels in the fourth quarter. Fourth quarter revenues also were affected by a delay in customer acceptance of a previously shipped order for 17 Flex Ultra automated optical inspection systems. CyberOptics expects to recognize revenues from this order in Q1 09.

For the Q1 09, given the uncertain economic environment, CyberOptics is currently forecasting a net loss of $0.28 to $.33 per diluted share on sales of $5 to $6 million.

Backend blues
On the backend, Aehr Test Systems Inc., a supplier of semiconductor test and burn-in equipment, said sales were $9.2 million in Q2 09, compared with $9.7 million in Q2 08.

Aehr reported net income of $872,000, or $0.10 per diluted share, in Q2 of fiscal 2009, compared with net income of $1.4 million, or $0.16 per diluted share, in Q2 of fiscal 2008.

"Our net sales for the second quarter of fiscal 2009 came in lower than we originally expected, as we saw customers delay new orders or defer delivery on existing orders in light of the current economic slowdown," said Rhea Posedel, chairman and CEO of Aehr, in a statement.

"During this slowdown we are focusing on two strategies. First, we hope to maintain our strong financial position by maximizing our cash balance and keeping expenses low. In response to the challenging business conditions, we implemented a two-week shutdown of our facilities in December, and are actively exploring other measures to control or reduce our expenses until capital spending in the semiconductor equipment industry returns to more normal levels," he said. "Second, we are aggressively introducing new products, such as our ABTS system, which are targeting new test and burn-in market segments."

Commenting on the outlook, Aehr VP and chief financial officer Gary Larson, said: "We are not expecting a meaningful improvement in this difficult operating environment until the second half of calendar 2009 at the earliest. Accordingly, due to the uncertainties in our market, we find it imprudent to provide guidance for the next several quarters."

The electronics materials sector is also seeing a downturn. Cabot Microelectronics Corp., a supplier of chemical mechanical planarization polishing slurries to the semiconductor industry, expects to report revenue in its first fiscal quarter ended Dec. 31, 2008, in the range of $62 to $63 million, or approximately 33 percent lower than in the same quarter last year.

"Over the past few months we have seen an unprecedented drop in demand for our products, which we believe is driven by significantly reduced consumer and business spending on electronics amid an uncertain economic environment, and is generally in-line with the decrease in overall industry demand," said William Noglows, chairman, president and CEO of Cabot, in a statement.

Not all is doom-and-gloom. Air Products and Showa Denko said will extend their 10-year production joint venture for etch and chamber cleaning products such as tetrafluoromethane and hexafluoroethane.

The firms will build a new production facility to manufacture hexafluoride butadiene in Kawasaki, Japan. The new plant is expected to be completed in 1H 09.

That venture, Showa Denko Air Products (SDAP), was formed in 1996 to capitalize on Air Products' fluorine handling capabilities and Showa Denko's technical and operating expertise in large-scale perfluorocarbon production facilities.

- Mark LaPedus and Dylan McGrath
EE Times

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