Amidst the gloom surrounding the severe earthquake and tsunami in Japan that saw most technology stocks plunging, Cymer Inc’s (CYMI) share prices increased 1.09% during the day and another 1.09% in after-hours trading yesterday.
Given that other equipment makers, such as KLA-Tencor (KLAC) and Novellus Systems (NVLS) saw share prices declining, in reflection of possible weakness in demand, it was apparent that sentiments on Cymer shares were being driven by other factors.
A closer look at its competitors clarified things. Cymer faces significant competition from the Japanese conglomerate Komatsu’s subsidiary GIGAPHOTON, which produces eximer lasers. GIGAPHOTON’s manufacturing operations are carried out at Oyama and Tochigi in Japan.
Earlier, management at Komatsu stated that some of its subsidiaries have been severely impacted by the Tsunami, such that all persons engaged in operations have not yet been found. The worst of the earthquake was felt at the Ibaraki and Oyama plants, although other manufacturing sites had also suffered to varying degrees.
Komatsu also stated that it was in the process of inspecting and determining the extent of damage, so it is not likely that production levels will return to normal any time soon. In addition to repair activity, the company would be dependent on regular power supply, which has also been impacted by the disaster.
Moreover, management expressed concern regarding the damage to the nearby Port of Hitachinaka, which has the potential to delay shipments even after production returns to normal levels.
Cymer is a leading innovator and supplier of eximer light sources used in the manufacture of photolithography tools that are an essential part of semiconductor manufacturing. The company sells its products across the U. S., Europe and Asia. Therefore, with its competitor GIGAPHOTON in dire straits, Cymer may be expected to see relatively higher demand this year and even in 2012.
We expect investors to remain positive about Cymer in the near to medium term, which should lead to some buoyancy in prices. However, given that fundamentals for the equipment market haven’t really changed, we are reiterating our short-term Hold recommendation (Zacks Rank #3).
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