Piper Jaffray Trims Estimates On Nanometrics

Piper Jaffray is trimming Nanometrics NANO Q4 and street high CY11 estimates for NANO driven by three factors: 1) Weak DRAM spending 2) Uncertainty in OCD revenue from Samsung Austin. 3) Lumpy Storage revenue. It thinks the second is likely to go NANO's way, but Samsung Austin favors NVMI and Korea favors NANO. Ultimately, Piper thinks Korea makes the decision. Piper believes that its estimates are now conservative particularly 1H:11. Piper Jaffray wants to be conservative because the lumpiness of business is difficult to model. It thinks lower estimates than its street high numbers for CY11 are priced into the shares. The trimmed numbers reflect its effort to accurately model company earnings and improve confidence in its estimates. Piper believes valuation remains compelling even on lowered estimates. Piper estimates DRAM spending will be down 30% in 2011. DRAM customers represent roughly 25% of CY10 revenue. This represents a $15M head wind for NANO next year. It estimates that Intel will grow from $50M in CY10 to $71M. In addition, NAND Flash revenue will grow from $40M in CY10 to $65-70M in CY11. Piper believes Intel and NAND will drive $46-51M in revenue growth next year, offsetting the weakness in DRAM. We now have CY11 NANO revenue at $225M up 17% YoY, at the high-end of our expectations for capital equipment spending growth of flat to up 20% for CY11. NANO closed Thursday at $11.82