Analyst James Covello says during a mid-quarter update, Novellus reiterated its second-quarter guidance for net orders, revenues and earnings. He says management said SARS continues to impact business, causing weak orders, but he believes order weakness is driven by a sequential decline in DRAM.
Covello believes any disappointment around Novellus' plans not to raise its order guidance as expected will be mitigated by management's surprisingly bullish tone on the second-half results. He reiterates his belief that the semiconductor-equipment cycle has bottomed, and thinks investors with a six-month to nine-month horizon should overweight the stocks. While Applied Materials remains his top pick, investors should begin to be more aggressive with Novellus.