Technology

Semiconductor Capital Equipment Sector Still Has Too Much Bull Market Hope

Jon C. Ogg

Published: September 6, 2018 12:20 pm

Last Updated: January 11, 2020 6:19 pm

Investors are often concerned about the stock market in September, and the investment community is getting another look ahead at the lack of strength in the semiconductor capital equipment segment. Presenting at the Citi Global Technology Conference, KLA-Tencor Corp. (NASDAQ: KLAC) sent the whole industry lower on Thursday after tweaking its recovery expectations.

Chief Financial Officer Bren Higgins sees the current quarter as a trough for shipments and a modestly weaker view of an expected rebound. While KLA-Tencor had already given an outlook about six weeks earlier, the shares had recovered handily (from $106 to $118 on a rounding basis). At that time the company was expecting the December quarter to see a stronger recovery than it sees now.

KLA-Tencor now projects that its shipments might be flat to down a few points. The prior call had been flat to up a few points. Overall industry woes have been a concern for many chip and chip capital equipment names in recent weeks after some had peaked earlier in 2018.

KLA-Tencor shares were last seen down 8.5% at $108.72, with a $17 billion market cap. Its 52-week trading range is $93.76 to $123.96, and the consensus analyst target price from Thomson Reuters was still way up at $136.14 prior to this move. That means that Wall Street analysts still have official price targets that are above the highs, which means they might have had too much “bull-marketitis” in their blood.

Other names in the semiconductor space were broadly lower on Thursday as well, but 24/7 Wall St. focused solely on the capital equipment side of the equation.

Applied Materials Inc. (NASDAQ: AMAT) was down 3.3% at $41.11, but it is the industry leader with a $40 billion market cap. It also is already down one-third from its 52-week high of $62.40, and the shares briefly hit a 52-week low of $40.40 on Thursday. The consensus target price also still feels a bit too bullish at about $62.

Lam Research Corp. (NASDAQ: LRCX) was considered a market darling earlier in 2018, but the 5.6% drop to $162.40 on Thursday is down from a 52-week high of $234.88. The 52-week low is $156.83, and the consensus target price that is still somehow all the way up at about $239. Lam Research also has a $25 billion market cap.

Kulicke and Soffa Industries Inc. (NASDAQ: KLIC) is Singapore-based but it is involved in capital equipment and expendable tools that are used to assemble semiconductor devices. Its shares were down 1.6% at $25.25, with a $1.7 billion market cap. Its 52-week range is $18.43 to $28.71 and the consensus target price is closer to $32.50.

ASML Holding N.V. (NASDAQ: ASML) was last seen down almost 5% at $186.00, with a $79 billion market cap. The Netherlands-based semiconductor equipment systems and lithography systems maker has a 52-week range of $158.32 to $221.66. The consensus analyst target is roughly $201.

After looking at the reactions and at the overall bullish price targets from Wall Street in this segment, it looks like these chip analysts will have to get more conservative on their upside expectations in the semiconductor capital equipment space.