Cymer Semi Riding Out Downcycle

Cymer, Inc. (CYMI) dominates the market for DUV light sources contained within excimer laser-based photolithography systems used in the production of semiconductors. We feel growth in ArF Lithography will drive growth in the second half of 2008. CYMI gross margins have grown from 37.5% in the first quarter of 2005 to 53.9%, but have dipped down to the 47-48% range. Competition in ArF has intensified as Gigaphoton has just shipped its 100th ArF system and probably now has a 40% market share. Consequently, we are reiterating our Hold rating on CYMI shares, keeping our target price of $30.00. The stock is currently trading at a 12.9x multiple of price to our 2009 earnings estimate (P/E). CYMI is the technological leader and a dominant supplier of light sources that are used within lithography tools. We do not anticipate any large changes in the firm's dominant market position, however we expect Gigaphoton to take market share in ArF until Cymer creates another technologically superior product. As such, we believe that the company should trade at an above-average industry multiple. The firm is in a cyclical industry that is currently in the down portion of a cycle. However advanced ArF products have ASPs [average selling prices] holding strong. Accordingly, we are reiterating our price target, at $30.00 which corresponds to a 13.9x P/E. Read the full analyst report on CYMI

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