Chip-Industry Leaders See Orders in Upswing

NEW YORK —  Novellus Systems Inc. roused the slumbering semiconductor equipment industry Monday by forecasting hefty order growth and strong profit for the second quarter, even as it recorded a first-quarter sales drop of 63%.

The first chip-equipment maker to report its earnings for the first quarter, San Jose-based Novellus appeared to convince Wall Street that the industry’s 18-month slump has given way to a new cycle of growth.

Meanwhile, Texas Instruments Inc., the world’s No. 1 maker of semiconductors for mobile phones, posted better-than-expected results for the first quarter and said sales were starting to pick up as equipment makers restock TI chips after a year of cutting inventories.

“The customers come back in slow trickles first,” said James Covello, chip equipment analyst at Goldman Sachs. “Right now, it looks like the floodgates are opening up a little bit.”

Shares of Novellus soared 7% in after-hours trading to $53.85, from their close of $50.40, up $1.69, on Nasdaq.

Dallas-based Texas Instruments reported an operating profit of $24million, or 1 cent a share, down 92% from $317 million, or 18 cents, a year ago.

The first-quarter consensus analyst profit forecast was nil, according to research firm Thomson Financial/First Call. Revenue tumbled 28% to $1.83 billion from a year ago but exceeded the $1.8 billion analysts had forecast.

More important, analysts said, was that TI’s semiconductor orders rose 18% in the first quarter from the fourth quarter, with orders for analog chips up more than 30%. The company predicted that total revenue would rise 10% in the second quarter from the first quarter.

Shares of Texas Instruments rose 33 cents to $32.13 on the New York Stock Exchange before the results were released.

Novellus reported first-quarter net orders of $175 million, far above its earlier projection of $130million to $150 million. The company predicted further growth in orders in the second quarter, up 43% to $250 million.

Novellus reported a first-quarter loss of $3.3 million, or 2 cents a share, excluding a one-time net special benefit and a gain on the sale of an investment, compared with profit of $82.1 million, or 55cents, a year ago.

Net sales--which usually reflect orders made several months before--fell 85% to $170 million.

Orders are the preferred measure of industry growth for many chip equipment analysts, reflecting more current business conditions than sales. Accounting rules prevent chip equipment makers from recognizing revenue until they build the product and the customer receives and accepts it.

Novellus forecast a second-quarter profit of 6 cents a share, above analysts’ average estimate of a 1-cent loss.