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Merrill Downgrades Chip Equipment Names


Merrill Lynch downgraded its investment ratings on 13 companies in the semiconductor equipment group, including Applied Materials (AMAT), KLA-Tencor (KLAC), Lam Research (LRCX), and Novellus (NVLS).

Analyst Brett Hodess says that due to industry checks and recently lowered end-market forecasts by other Merrill analysts, the likelihood of a pause in semiconductor equipment orders in the second half of 2002 greatly increased over the past weeks. He still sees -20% semiconductor capital spending in 2002, but his 2003 estimate goes from 30% growth to 20%-25% growth. Given declining multiples in the overall equity market, slower growth to more typical cyclical EPS, Hodess says p-e ratios are likely to decline vs. the average of the last several cycles.


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