Rumors of a Samsung DRAM equipment pushout have been greatly exaggerated, when in fact it's "the same old story [...] playing all over again," writes Barclays CJ Muse: Samsung's being logically ruthless in its litho tool procurement strategy. "A litho tool in their hand is one that is not with a competitor," so it's scooping up XT tools off the market and putting them into its NAND lines, and moving NXT tools over to its DRAM operations. Thus NAND demand is pulled in but DRAM is pushed out, and that is the balance in Samsung's orders vs. shipments, not any weakening demand.
There is, however, a delay in getting Samsung's Austin TX facilities ready for system LSI work, Muse points out. But with key customer Apple waiting for parts, he thinks those particular tool shipments probably won't slide more than 2-3 months into 1Q11.
Who's wrong, semicap investors or industrials?
There's a disconnect somewhere, and Barclay's CJ Muse says there could be money on the table for investors who figure it out.
Fact: Both semiconductor equipment and industrials are heavily weighted to worldwide GDP. Another fact: industrial stocks' P/E multiples are at a significant premium vs. semicaps, now around 25% after being as much as 57% back in August and ~30% for most of the year. That P/E premium is "difficult to comprehend," Muse argues, since both sectors are leveraged to the same end markets, and both seem to highlight a global supply/demand footprint and cost-structure aims. (Yes, semiconductor capital equipment firms are notoriously cyclical, but he argues that their improved margins in this cycle should have closed that P/E multiples gap with industrials -- which have their own cyclical plays too, he adds.)
Industry watchers believe we're in a mild and short mid-cycle correction , and guidance from some key companies (KLAC, NVLS) suggests an order trough is on the immediate horizon (1Q-2Q11), on the order of -15% to -25%. "Once we get clarity on what the trough looks like, we believe investors will likely want to own semi cap equipment shares again," Muse writes. Investors generally don't fight the semiconductor cycle (much as they "don't fight the Fed"), but "any way you slice it, we believe the selective names that can drive superior cash flow generation this cycle (i.e.: LRCX, TER, KLAC] should see outperformance, particularly relative to higher-priced industrials shares," he says.