Friday, April 20, 2012

Can Novellus re-invigorate Lam Research?

Dr. Robert Castellano, The Information Network

USA: There have been rumors of the purchase of Novellus by Lam Research practically since I started The Information Network in 1995. It finally happened, but it begs the question – Why now? Why not years ago?

With Lam Research being the purchaser and roughly twice as big as Novellus, one can assume that it was a help to Novellus because the transaction values Novellus at $44.42 a share, representing a 28 percent premium over Novellus’s closing stock price before the deal was announced, whereas Lam is paying a smaller premium than the average paid by buyers of semiconductor-equipment makers in recent years. In deals valued at more than $250 million during the past five years, acquirers have paid an average premium of 56 percent.

In other words, the acquisition makes it appear that Novellus was desperate to sell.

However, if we look at 2011, Lam Research lost share in its bread-and-butter etch business to TEL and Hitachi, while Novellus lost share in PVD to Applied Materials and gained CVD share from Applied Materials.

In addition, if we look at financials, LAM Research’s net income dropped from $182.2 million in CY Q1 2011 to a less-than respectable $33.2 million in Q4 2011. Novellus’ net income dropped by less than a third, from $96.4 million in CY Q1 2011 to $38.5 million in Q4.

This past week, Lam reported sales of $658.96 million for the quarter ended March 25, up 13 percent from the prior quarter but down 19 percent compared to the year-ago quarter. Lam reported a net income, up 30 percent compared to the previous quarter but down 75 percent compared to the year ago quarter.

Novellus reported first quarter sales of $326.7 million, up 16 percent from the previous quarter but down 21 percent compared to the first quarter of 2011. Novellus reported a first quarter net income of $44.4 million, or 59 cents per share, up 15 percent from the previous quarter and down 54 percent from the first quarter of 2011.

In other words, while it looks like Novellus was desperate to sell, Lam Research was desperate to buy.

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