Novellus stock slips on computer-industry worries

SAN FRANCISCO (AP) — Shares of Novellus Systems Inc. fell on Thursday, a day after the technology equipment maker lowered its order guidance.

THE SPARK: On Wednesday, Novellus tempered its third quarter outlook and CEO Richard Hill told analysts in a conference call that customers had become "decidedly more cautious" since July, largely because of "persistent weakness in consumer PC demand."

What worried some investors was that the company narrowed its revenue guidance to $300 million to $320 million, from the previous forecast of $300 million to $340 million. However, cost controls and other factors allowed the company to narrow its earnings per share forecast to the upper end of the previous range, at 65 cents per share to 75 cents per share.

THE BIG PICTURE: Novellus makes equipment used in the manufacture of computer chips. When computer demand slumps, as it has been for PCs in the U.S. and Europe, its customers postpone buying expensive equipment. What Novellus is seeing is a slowdown caused by extreme weakness in the PC market.

THE ANALYSIS: Analyst Timothy Arcuri with Citigroup Global Markets, who has a "hold" rating on the stock, wrote in a research note that there was little surprise in Novellus' announcement, and that with the cut likely already incorporated into the stock price, ""we see the stock more likely to trade up than down on this news." He has a price target of $40 per share.

SHARE ACTION: The stock declined 60 cents, or 2.2 percent, to $27.37.

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