Merrill Downgrades Chip Equipment Names

Among the companies affected: Applied Materials, KLA-Tencor, Lam Research, and Novellus

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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