Novellus Systems (NVLS)

TOP CONTRIBUTORS

Naveen Kasthuri

Novellus Systems, Inc. (NVLS) is organized into two large segments: the semiconductor group and the industrial applications group. The semiconductor group manufactures, sells and supports equipment used in the fabrication of integrated circuits and semiconductors. The industrial applications group develops, manufactures, sells and supports grinding, lapping and polishing equipment for optimization and serves a range of industrial applications.^[1] Due to the cyclicality of the semiconductor industry, all of the semiconductor industry companies including NVLS is highly prone to the macroeconomic landscape.

Business Growth

Novellus, due to its industry focus on semiconductors, is prone to dramatic changes in demand based on the global economic standing. The company rebounded from a recession low of $632.9 million in 2009 revenue to $1.3 billion in revenue in 2010.^[2]. However, net income has stagnated due to the natural decline in prices of semiconductors and chipsets.^[2]

Key Trends and Forces

Dependence on Asia

NVLS, along with the majority of the semiconductor industry, depend on the business and resources of Asia. China provides nearly half of Novellus's revenues^[3]. Many semiconductor companies have a strong presence in Asia since being well developed in China could prove prudent considering China's growth.

Threat from Semiconductor Cyclicality

NVLS's performance is tied to the ups and downs of the semiconductor industry, an industry that is notoriously cyclical. The semiconductor industry is affected by the fluctuating demand for PCs and cell phones, and by the rest of the electronics market. The demand in up cycles is so high that the chip manufacturers can't keep up. Similarly, if electronic sales, particularly PC sales, are slow, demand for chips can plummet. The semiconductor industry is at the whim of consumer demand more than corporate demand. This fact also adds to volatility in demand. If semiconductor companies anticipate a downturn in the industry then NVLS will likely feel the pressure from capital expenditure cutbacks.

Competition

Novellus's main competitors are:

• Applied Materials (AMAT)
• ASM International N.V. (ASMI)
• Mattson Technology (MTSN)
• PSK (KDQ:A031980)

Due to the inherent nature of the industry, competition is very intense. Fabrication labs are forced to cut costs as efficiently as possible to ensure the sustainability of their sales and net income.

References

1. ↑ Reuters: Company Profile - NVLS
2. ↑ ^{2.0 2.1} Wikinvest SEC Files: NVLS 2010 10-K, Item 6
3. ↑ Wikinvest SEC Files: NVLS 2010 10-K, Item 8 Note 19