Nova's year of transition

Nova Measuring Instruments has learned to manage market expectations, which will be vital as it gears up to serve next generation chip production.

16 January 12 18:04, Shlomi Cohen

Although the news from Europe continues to weigh on the markets, the January effect has so far yielded 4% this year, but the great test will come this week, when in the course of four trading sessions, from Tuesday to Friday, four of the largest banks, four technology giants, and the biggest industrial concern in the US, will all release financials, as will dozens of lesser companies.

Tomorrow is the turn of Citi (C), on Wednesday it will be Goldman Sachs (GS), and on Friday Bank of America (BAC) and Morgan Stanley (MS), all before the opening. Google (GOOG), Microsoft (MSFT), Intel (INTC), and IBM, will report on Thursday, after the close. General Electric (GE) will report on Friday morning. In addition, some interesting niche technology companies will report this week: Check Point Software Technologies Ltd. (Nasdaq: CHKP) tomorrow, and on Wednesday, eBay (EBAY) , F5 (FFIV), and ASML.

The macro picture in Europe is very worrying, but on the micro level, one can find giant companies that are booming in their respective fields. German software company SAP, which has a market cap of $65 billion, published a positive warning about its fourth quarter results on Friday, which came as a pleasant surprise, because, a month ago, its great rival Oracle (ORCL) disappointed. Dutch semiconductor equipment giant ASML, which succeeded in surpassing Applied Materials (AMAT) of the US last year as the semiconductor equipment company with the highest market cap, over $17 billion, will report on Wednesday.

Understanding the semiconductor equipment market

The results, the guidance, and the orders level that ASML reports on Wednesday before the opening will be very important for understanding how the semiconductor equipment market will shape up in the coming year. ASML sells lithography systems, which are for the critical stage of semiconductor manufacture. Each machine can cost tens of millions of dollars, and the lead time is about a year. Via ASML, investors will seek to glean information about Intel's plans for investment in existing and new production lines this year.

At the beginning of 2011, Intel amazed the industry when it significantly raised its level of investment in switching to more advanced production technologies, but, in recent months, its smaller suppliers have reported plans to reduce this in 2012. The assumption is that along with the release of its results on Thursday, results about which it has already issued a warning, Intel will also officially report a reduction in investment this year that will affect the entire industry.

A week ago, Intel announced in Las Vegas that, in the second half of this year, it would launch many Ultrabook computers based on advanced processors produced with 22 nano technology, which it calls "Ivy Bridge". The bulk of the investment in the production lines for these processors has already been made, and at Intel's fab in Kiryat Gat, for example, a substantial level of production at 22 nano is expected by April.

Nova's transition year

A very small but interesting Israeli player in semiconductor equipment is Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), which specializes in various metrology systems for production processes. Nova will not be affected by Intel's plans, because many years ago it lost Intel as a customer to Nanometrics (NANO). Among Nova's biggest customers are TSMC (TSM), the world's largest semiconductor manufacturing subcontractor, Samsung, the world's largest memory chip manufacturer, and IBM, about which there are those who are certain that it was the customer that placed the large order that Nova announced a week ago.

It seems that, last week, Nova CEO Gabi Seligsohn managed to dodge between the drops at the Needham Growth Conference and to convey the message that 2012 will be a year of transition for Nova before a renewal of growth in the following years, in other words, a fall in sales and a rise in expenditure this year.

The transition to advanced technologies like 3D, further reductions in production geometries, and a switch in about three years' time to 450 mm wafers, instead of the 300 mm wafers of today, will all require advanced metrology solutions, some of which Nova has already developed, and some of which will be developed in the coming years, requiring higher expenditure.

During the worst of the crisis in early 2009, Nova's share price hit $0.40. With the recovery, it revived to over $11 last summer. When the market understood that investment in semiconductor production lines was slowing somewhat, after the surge when the crisis ended, Nova's share price dipped to $5.5 dollars two months ago, but it has since bounced back by 45% to $8, among other things because the company's management knew how to manage expectations on Wall Street correctly.

Published by Globes [online], Israel business news - www.globes-online.com - on January 16, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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