VSEA Varian Semiconductor (MM)

Varian Semiconductor Inc. (VSEA) has reported third quarter 2011 earnings per share (EPS) of $1.03, surpassing the Zacks Consensus Estimate of $1.00. The quarter’s results bettered the year-ago figure and the company’s guided range of 97 cents and $1.02 on higher revenues and margins.

Revenues

Varian reported third quarter total revenue of $328.4 million, up 44.2% from $227.7 million in the year-ago quarter. The revenue was in line with the mid-point of the company’s guided range of $323.0–$333.0 million. The phenomenal growth in revenue may be attributed to higher contribution from all its operating segments and geographic regions.

Product revenues jumped 43.9% to $302.1 million from $209.9 million in the year-ago quarter. The improvement was driven by increased sales of memory and logic tools. Revenue from the Service segment increased 48.3% year over year to $26.4 million.

The company’s solar ion implant tool Solion continued to gain popularity among solar cell manufacturers during the quarter. Solar cell constituted roughly 6% of the total shipment.

Varian’s unit shipments were 43.0% from Foundry, 28.0% from Memory and 23.0% from Logic, compared to 52.0%, 22.0% and 46.0%, respectively, in the previous quarter. Geographically, Asia contributed 70.8% of total revenue, while North America and Europe contributed 13.4% and 14.8%, respectively.

Operating Results

Gross profit in the third quarter surged 62.1% year over year to $161.8 million. Gross margin was 49.3%, compared to 49.0% in the comparable quarter last year. The marginal improvement was attributable to product mix.

Operating margin was 27.1%, compared to 23.8% in the year-ago quarter. Total operating expenses surged 27.0% year over year to $72.9 million. The increase in operating expenses was mainly due to higher investments in various projects aimed at further penetration in the core market and tapping new ones. An increase in headcount and variable compensation also raised expenses.

Varian reported net income of $67.4 million or 87 cents per share, up from $45.2 million or 60 cents in the year-ago quarter. Excluding total one-time expense of 16 cents associated with the pending merger between Varian and Applied Materials Inc. (AMAT) and an additional tax expense related to U.S. Internal Revenue Service examination, adjusted net income was $80.8 million or $1.03 per share.

Balance Sheet

Cash, cash equivalents and short-term investments were $556.0 million versus $421.9 million in the prior quarter. Accounts receivables were $222.8 million and inventories were $226.3 million. Varian has no long-term debt in its balance sheet.

During the quarter, Varian did not repurchase any shares from its common stock.

Recommendation

We find third quarter results encouraging given the solid year-over-year revenue growth and higher-than-expected EPS. Moreover, we are encouraged by the introduction of Trident, the new high current tool and solar ion implant tool –– Solion –– which are expected to strengthen Varian’s existing market position and improve its prospects in new markets.

In May, Applied Materials announced that it will takeover Varian by paying $63 per share in cash. Varian will operate as a separate business unit and its results will be reported under Applied’s Silicon Systems Group. Till the news broke out, shares of Varian remained range bound.

Currently, Varian has a Zacks #5 Rank, which translates into a short-term Strong Sell recommendation.

Varian (NASDAQ:VSEA)
Historical Stock Chart
From Mar 2024 to Apr 2024

Varian (NASDAQ:VSEA)
Historical Stock Chart
From Apr 2023 to Apr 2024