Semiconductor Stocks Should See Greater Upside as Businesses Start Upgrading Hardware for Windows 7, According to Industry Expert

• On 5:13 pm EDT, Thursday September 3, 2009

67 WALL STREET, New York - September 3, 2009 - The Wall Street Transcript has just published its Semiconductors, Semiconductor Equipment, and Software Report offering a timely review of the sector to serious investors and industry executives. This 115 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: DRAM Industry Reorganization -- Semiconductor Supply Chain Status -- Netbook Growth -- LCD TV Growth -- NAND Pricing and Demand -- Micro-Electro-Mechanical Systems (MEMS) Demand Cycle -- Ultra Low Voltage Processors -- Semiconductor Inventory Aging and Type -- Processor Power Developments

Companies include: Intel (INTC); Micron Technology (MU); Microsemi (MSCC); STEC, Inc. (STEC); National Semiconductor (NSM); Texas Instruments (TXN); Taiwan Semiconductor Manufacturing (TSM); ON Semiconductor (ONNN); Intersil (ISIL); Linear Technology Corporation (LLTC); Monolithic Power Systems (MPWR);Advanced Photonix (API); Waytronx Inc. (WYNX); LTX-Credence (LTXC); Mattson Technology Inc. (MTSN); Oclaro, Inc. (OCLR); Silicon Laboratories (SLAB); Microchip Technology, Inc. (MCHP); Cohu, Inc. (COHU); FSI International, Inc. (FSII); Jaco Electronics (JACO); Cadence Design Systems (CDNS); Synopsys (SNPS); Mentor Graphics (MENT); Magma Design Automation (LAVA)

In the following brief excerpt from the 115 page report, Patrick J. Ho, Vice-President, Stifel, Nicolaus & Co., Inc., discusses the outlook for the sector and for investors.

TWST: Patrick, I gather you cover the equipment side of the semiconductor space.

Mr. Ho: Yes, I'm entirely on the equipment side.

TWST: Here at mid-year, what's going on from a business perspective?

Mr. Ho: I think the key word is stabilization. If you go back to the end of last year as well as the beginning of this year, there were concerns that we were heading into a severe depression. "It looks like the end of the world" was the type of comment that we were getting. I think now we are seeing that it's not the end of the world. But have things been bad? Yes, absolutely but I don't think things are going to get any worse and in some select cases, we've actually started seeing a pickup in business. So I think there's overall stabilization and what I would call select areas of a pickup in business that we weren't forecasting at least in the beginning of the year.

TWST: Is the pickup coming from particular segments?

Mr. Ho: Yes. I think that the biggest pickup is in the wireless area. If you look at companies like Qualcomm (QCOM) or Broadcom (BRCM) on the semi side of the world, that's been a driver at least from the equipment side of things for some of my test players like Teradyne (TER), like Verigy (VRGY). They've seen a pickup there. Also notably with the pickup in wireless, you see in the foundries like Taiwan Semi (TSM) that their business has also picked up, particularly I would say in the last four months or so. So I think that's probably the biggest area of a jump. Now other areas are starting to show some signs of life. I think with the recent earnings season you saw Texas Instruments (TXN) and Linear Technology (LLTC) talk about a small pickup on the analog side. So overall you're starting to see other market segments I think recover along with wireless.

TWST: Where are you pointing investors at this point?

Mr. Ho: I've got a very bullish outlook on semi cap equipment names, particularly for 2010. I have an overweight rating on the sector as a whole. In terms of names that I do like, I like Varian Semiconductor, I like Lam Research. I think those are two fundamentally sound companies in my space. They are run very well, have excellent operating models and they've got great balance sheets. Plus I think those two companies have the strongest management teams in my space. Another company that I do like on a recovery scenario is Cymer in terms of the technologies that they provide and what they participate in. I think they'll be a beneficiary of new technologies and new processes that continue to get adopted on a going forward basis. And a smaller company that I do like is a company called Rudolph Technologies (RTEC), which I think will benefit also from some process changes, particularly in the memory space where I think they'll benefit more than a lot their peers.

TWST: Let's touch on the two big ones. Why Varian and Lam, what's the appeal?

Mr. Ho: Again, I think in terms of their market share positions, their operating models, their balance sheets, and in terms of the management teams, I would put them above almost everyone else in the equipment space.

TWST: You mentioned a couple of names earlier to be wary of. Are there any other ones that investors should stay away from?

Mr. Ho: One name that I'm particularly concerned about on a company-specific basis is FormFactor (FORM). I think that they'll benefit from a recovery in the memory market, because they are heavily exposed to the DRAM industry. So I don't want to discount that. They're going to rise with the industry tide, so that they will benefit from. But I think they have a lot of company-specific issues. They need to address particularly one on the cost cutting front - whether their cost basis is still too bloated. Now, in my opinion, I think it is and I don't think they've acted quickly enough to reduce their overall cost structure. The other issue is, they've had execution problems in the past and I need to see better traction for some of their new products following these execution issues. Management can tell me that they're gaining traction but truth be told it will be evident in the numbers, and I don't think we are able to definitively say, "Yes, they are getting traction for their new products now that these execution issues are behind them." I still think that remains to be seen and given that these are two major issues on my end, I'm worried about the long-term prospects of the company.

TWST: Is there anything else we should touch on?

Mr. Ho: Again, investors are clearly warming up to at least the equipment group, based on what I'm thinking and some of my peers are thinking about 2010.

TWST: Thank you. (TJM)

Note: Opinions and recommendations are as of 8/5/09.

PATRICK J. HO Vice-President Stifel, Nicolaus & Co., Inc. 5956 Sherry Lane Suite 875 Dallas, TX 75225 (214) 647-3509

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 115 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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