Novellus warns on first quarter results, shares tumble

By Sinead Carew

NEW YORK (Reuters) - Novellus Systems Inc (NVLS.O) warned on Tuesday that its first-quarter earnings would be lower than expected due to weakness in the memory chip market and a higher tax rate, sending its shares down more than 7 percent.

Analysts said the semiconductor equipment maker's earnings for the rest of the year could also be lower than expected after the company also blamed write-offs related to research and development cost cuts for the first quarter shortfall.

"I would expect the numbers for Novellus to come down," Pacific Crest analyst Weston Twigg said.

Novellus estimated net income per share for the quarter ended March 29 at between 15 cents and 17 cents compared with its February 28 forecast range of 21 cents to 24 cents.

It said first-quarter revenue would be at the low end of its expected range of $315 million to $325 million.

Analysts on average had expected net earnings per share of 23 cents on revenue of $319.4 million, according to Reuters Estimates

Novellus shares were down $1.74, or 7.3 percent, to $22.07 and also dragged down shares of rivals such as Varian Semiconductor (VSEA.O), which were off 4.3 percent; Applied Materials (AMAT.O), which fell 2.7 percent; and KLA Tencor (KLAC.O), down 2.9 percent. Another rival, Lam Research (LRCX.O), fell 3.8 percent.

On the same day that chipmakers such as Hynix Semiconductor Inc (000660.KS) forecast a recovery in pricing for memory chips, Novellus cited weakening spending by makers of dynamic random access memory (DRAM), used mainly in personal computers.

"We're seeing a less-certain capex spending market in the memory business," Chief Executive Richard Hill said on a conference call with analysts. He noted that if there was a recovery in pricing it was slow.

"When we look at what has happened to us here, it's a combination both of what's happening in the marketplace and a self-inflicted wound."

Hill was referring to internal revenue recognition delays related to changing policies in the company's European business as well as write-downs that could continue in future quarters related its efforts to pare R&D costs.

Novellus did not give a full-year forecast. RBC Capital analyst Mahesh Sanganeria said his estimate for full-year earnings per share of $1.05 would have to be reduced by at least 6 cents. On average, 16 analysts expect full-year earnings per share of $1.25, according to Reuters Estimates.

Stifel Nicolaus analyst Patrick Ho said that while investors were aware of weakness in the DRAM market, they were disappointed by items such as revenue-recognition changes.

"Those are things they can control. Those are things that in terms of managing the Street expectations you expect them to do better on," he said.

Novellus also cited "a less-favorable-than-expected product mix combined with higher manufacturing spending" in industrial applications for the first-quarter shortfall.

(Reporting by Sinead Carew; Editing by Mark Porter and Derek Caney)