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J.P. Morgan Cuts Novellus Systems to Neutral


J.P. Morgan downgraded Novellus Systems (NVLS) to neutral from overweight.

Analyst Jay Deahna says the chemical mechanical planarization (CMP) market share gain story is not materializing as he expected; he's also incrementally concerned about chemical vapor deposition (CVD) share. He says loss of share in the core plasma enhanced (PE) CVD business in "low k" applications is his largest concern; physical vapor deposition (PVD) market share growth is happening at a slower than expected pace and at sub-par margins.

Deahna notes Novellus' valuation is at the upper end of the large-cap front-end equipment spectrum at 18.7 times his 2006 earnings per share estimate vs. the group's 17.0 average.


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