Barrington Just Downgraded Rudolph Technologies, But Why?

In a report published Wednesday, Barrington analyst Ted Moreau, Jr downgraded the rating on

, while reducing the Q2 estimates, following recent data points and industry conversation indicating the possibility of lack of visibility into the back-end advanced packaging market in the near term. According to the Barrington report, "One of the concerns in this market has been the full-year capital spending plans by the major OSATs, which may now be playing out in near-term softness. Solidifying our view, one of Rudolph's customers, Siliconware Precision Industries, has indicated their business has been weak in Q2 following strong demand in Q1." While the softness in the PC market is likely to be affecting near-term chip demand, the analyst believes that a bigger reason for the decrease in demand have been the below expectations sales of the Samsung Galaxy S6. The Q2 revenue estimate has accordingly been lowered to reflect the uncertainty in the market for the near term. "Management guided Q2 revenue up to a range of $55-58 million driven by continued strength in the back end. We do not believe the front end has yet picked up to offset this particular softness. We are lowering our Q2 revenue estimate to $49 million (from $56 million previously) to reflect our near-term backend spending concerns," Moreau said. The EPS estimates for Q2, 2015 and 2016 have also been revised from $0.18, $0.69 and $0.73 to $0.11, $0.57 and $0.70, respectively. However, the 2015 estimates for JetStep Lithography have been maintained. "We expect Rudolph to recognize revenue on one tool in Q2, which was a follow on order from their initial JetStep customer. We expect Rudolph will recognize revenue for an additional JetStep tool in each of Q3 and Q4 this year," Moreau explained. These orders reaffirm the company's position in the back-end advanced packaging market, while indicating that the market is beginning to shift to next generation advanced packaging techniques, which would benefit Rudolf Technologies in the longer term. The analyst believes that there could also be potential for additional orders later in 2015, providing upside to the estimates.