Analysts like outlook for Advanced Energy

FORT COLLINS — While company officials at Advanced Energy Industries still claim poor visibility, some analysts believe the fog is beginning to lift over the long-depressed semiconductor industry.

Advanced Energy makes power conversion systems used to manufacture high-tech products, including semiconductors, flat-panel displays and DVDs. Nearly 60 percent of the company’s revenues come from the semiconductor industry.

AE’s biggest customer, Applied Materials, also received a boost from analyst Piper Jaffray, which improved projections for the company’s 2003 performance by 3 cents to 21 cents earnings per share on sales of $5.3 billion.

Analysts at Adams Harkness Hill have raised their rating on AE and semiconductor companies across the board from “Market Perform” to “Buy,” based on the anticipation of improving order patterns.

But AE’s director of investor relations, Cathy Kawakami, said the company has not changed its own guidance, which stands at flat to down.

“There still needs to be a (personal-computer) buying cycle, and we still need to see more capital spending on IT,” Kawakami said. “All of those macros need to come into play.”

Preliminary results from Dataquest Inc. show that the PC market returned to positive growth in 2002, but the market-research firm still sees demand at the bottom of a growth cycle with no signs of a significant upturn.

November saw the chipmaking-equipment market fall more than 37 percent compared to the previous month, but still show a nearly 30 percent improvement over November 2001 figures, according to a recently released report by the Semiconductor Equipment and Materials International Association.

Next-generation technology is keeping the industry going, Kawakami said, as chipmakers look to the new 300 millimeter wafer as the next step in speed and cost efficiency.

“There’s not a strong demand right now,” she said, “But when demand does pick up, facilities are going to want to be ready to go with the next-generation technology.”

Intel, the No. 1 chipmaker, is way ahead of the game with 300-mm technology, Kawakami said. “Everyone needs to keep up with Intel,” she said.

Last week, the chipmaking giant hit the market hard, announcing its plan to slash capital spending by at least $1 billion in 2003.

But some say that move was counteracted by Samsung’s next-day announcement that it plans to increase its semiconductor-equipment investment by $1.7 billion over last year.

“While Intel lowered its capital spending, Samsung raised theirs aggressively,´ said Tim Summers, director of Chicago-based Investec PMG Capital. “Samsung’s increase basically offset Intel’s decrease.”

Summers said his company hasn’t changed its positive rating of AE since it initiated coverage last April.

“We believe the semiconductor industry will enter a cyclical upturn in the second half of 2003,” he said. “By virtue of that we’ll see a drag-along increase in capital spending in equipment. By the second half of this year, Advanced Energy should see a fairly strong return to growth.”

But others say the return in demand won’t come so quickly.

“Industry forecasts have been all over the board lately,´ said Alex Paris, president of Barrington Research in Chicago.

“We are seeing more positive forecasts coming from PC markets and the semiconductor market itself, so I would assume that orders will be picking up,” Paris said. “But the question is, ?Is it going up fast enough to be aggressive about it now?'”

One bright spot in the industry is the nature of the equipment itself, Paris said. “With the life span of equipment at only about three to five years, and the downturn in the market approaching three years, a lot of equipment out there is getting old,” he said.

Either way, Paris said he rates AE as a long-term buy. “It’s an excellent investment for patient investors,” he said.

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