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Short Sale Recommendation
KLA-Tencor (NASD) KLAC $32.05

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We are recommending the short-sale of KLA-Tencor over the near term.

KLA-Tencor is engaged in the manufacture of equipment for the semiconductor and microelectronic industries. The company's major products focus on controlling the semiconductor manufacturing process and/or improving the yield of the manufacturing process.

While we recognize that KLA-Tencor is a premier equipment supplier to the semiconductor industry, our concerns regarding the stock price of KLA-Tencor are as follows:

Our primary concern is the continued poor environment for the customers of KLA-Tencor; that being the semiconductor industry. Recently, Intel announced that it will reduce its capital expenditures to around $4.5 billion down from $6-$7 billion.

The company has done a good job of reducing its expenses and thus has been able to post profits over the past 18 months. However, it should be noted that over the past six months gross revenues have declined 22% and net profits have dropped about 40%. As the slump in the semiconductor industry continues, it will be more difficult for KLA-Tencor to show a profit.

At the present time, the investment community is expecting the company to earn $0.65 per share for the fiscal year ending June 30, 2003. At its current price of $31.50 per share, we believe the stock price is very highly valued.

Should the company report earnings of less than $0.65 this would be a negative surprise and as such would have a depressing effect on the stock price. Given the overall conditions in the semiconductor industry we believe that there is a likelihood of a negative surprise.

We would expect the stock price to decline to the mid-$20s over the next 2-3 months.

Stock Traders Press Management