FSI International stock jumps dramatically after company’s upbeat Q3 outlook

FSI International (Nasdaq: FSII), the Chaska-based manufacturer of capital equipment for the microelectronics industry, issued an upbeat outlook for the third quarter late Wednesday that sent its stock soaring on Thursday.

 It ended the day at $4.04, up $1.29 for 46.9 percent gain, making it the biggest percentage gainer on any market for the day, with 3.2 million shares trading hands, more than six times the daily average.

FSI, supplies processing equipment used at key production steps in manufacturing semiconductor devices and thin film heads.

Based on shipments already booked for the quarter ending Saturday, the company now expects revenues of $27 million to $29 million, up from a previous projection of $25 million to $27 million. That compares with $18.9 million in the second quarter and $15.4 million in Q3 a year ago.

The company also said that it expects net income of $5 million to $6 million for the third quarter, double the previous projections of $2.5 million to $3 million. That compares with $609,000 in net income the second quarter and a loss of $2.8 million in Q3 of 2009.

The company expects to report actual third-quarter financial results June 24.

Explaining the revised outlook, Benno Sand, executive vice president of Business Development and Investor Relations for FSI, cited both favorable industry trends and recent moves the company has made.

Historically, FSI was an equipment supplier for logic chip manufacturers. Over the last several years, the company has gained market share among memory chip manufacturers as well. As a result, “we’re not only participating in the general industry recovery, we’re now selling product into more segments.” he explained. “The recovery probably has been going on now for three or four years in the industry. That’s just continued as demand for semis has improved along with the economy,” he added.

In addition, FSI invested heavily in a new surface cleaning product called Orion, which provides a closed chamber for faster and more efficient small-batch cleaning of semiconductor wafers during the manufacturing process. Two Orion products have been shipped for revenue, according to Sand, with several more in customer sites for evaluation.

Craig Hallum equity analyst Christian Schwab, who has a “buy” rating on the stock, raised his price target to $7. In a note to clients, he said that “we believe the company will continue to show meaningful operating leverage as the industry recovers and the company’s addressable market expands due to the Orion product.”

Schwab cited market research from the Gartner Group “forecasting a multi-year recovery with capital equipment spending expected to grow 76% in 2010, followed by 24% in 2011 and 18% in 2012.”

It also noted: “ In addition to an overall market recovery, we believe FSI is better positioned this cycle given greater exposure to the memory market which can represent roughly 70% of total industry capital spending at cyclical peaks. Finally, we continue to expect additional strategic placements of the ORION system in 2010 with a substantial revenue opportunity in 2011.”

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