|
|
 | | | |
- close
- close
- close
- close
Allegheny Technologies (ATI) |
Suggest other news sources for this topic
WIKI ANALYSIS
This article is about the specialty metals distributor. For other uses, see Alleghany (disambiguation). Allegheny Technologies (NYSE: ATI) is a specialty metals producer, which means it makes metals for clients who require the product to have precise hardness, conductivity, and malleability. Consumers include aerospace and defense businesses as well as automotive and medical firms, including the Boeing Company (BA), the General Electric Company (GE) Aviation Division, and BAE Systems (BAESY). Though ATI does most of its business in the United States, a significant portion of its revenue is from direct international sales.
As a specialty metals producer, ATI is highly dependent on the prices of raw materials. Because the market price for the company's specific raw materials is volatile, ATI is susceptible to unexpected changes in material expenses. Increasing environmental regulations and cyclical demand for ATI products create additional risks. The condition of the cyclical markets of key clients, such as the aerospace, transportation, and energy industries, plays a significant role in the success of ATI.
Corporate Overview
Business Financials
In 2009, ATI sales reached $3.05 billion, a sharp decline from the previous year's revenues of $5.31 billion. As a result, its net income also took a fall, as it declined to $38 million in 2009 as opposed to $566 million in 2008.
Business Segments
ATI breaks its operations into three segments: i) High Performance Metals, ii) Flat-Rolled Products, iii) Engineered Products.
High Performance Metals (HPM) (42% of 2009 Revenues)[1]
This segment processes metals designed for extreme conditions, such as high heat or corrosion resistance in all types of environments. Final products include conventional titanium, nickel, and cobalt based alloys and more unique alloys of zirconium, halfnium, and niobium. ATI normally ships these metals in long product forms, such as rods, wires, bars, and seamless tubes. Popular markets for their HPMs partially overlap those of the FRP segment and include the aerospace and defense, oil and gas, and medicinal industries.
Flat-Rolled Products (FRP) (50%)[1]
This segment refers to metallic plate, sheet, or foil products made by passing ingot (semi-processed metal) through pairs of rolls. For ATI, this includes stainless steel, nickel-based alloys, and titanium and titanium-based alloys. These specialty metals are made into those different product forms and different types (i.e. for electrical or tools use). Major consumers of these products include electrical energy companies, chemical processing businesses, food processing industries, and aerospace firms. ATI's FRP sector is composed of ATI Allegheny Ludlum, a 60% share in a Chinese joint venture company known as Shanghai STAL Precision Stainless Steel Company Limited (STAL), and a 50% share in a titanium joint venture called Uniti LLC.
Engineered Products (EPs) (8%)[1]
Engineered Products refer to various equipment and tools specifically designed for the oil, mining, and metalworking industries. ATI's goods in this sector include tungsten powder, heavy alloys, and carbide cutting instruments. The constituent divisions within the EP segment include ATI Metalworking Products, ATI Portland Forge, ATI Casting Service and ATI Rome Metals.
Trends and Forces
Price volatility of raw materials hurts ATI
ATI operates most of its inventories in a Last In, First Out (LIFO) system as opposed to a First In, First Out (FIFO) system, so the day-to-day prices of raw materials plays a key role in their expenses. The market for many of their raw materials is highly volatile, making future price stability for ATI's own products unpredictable. Depending on whether raw material costs are rising or declining, LIFO or FIFO will be the efficient financial option.
Long-term contracts are a double-edged sword for ATI
ATI has entered into a handful of long-term contracts, including many with the US government. As stated, on October 16, 2006 Boeing and ATI signed a titanium products supply deal worth $2.5 billion, which goes until 2015.[2] Though certain economic events (such as an increase in costs) make entering into such fixed-price contracts detrimental for ATI, it is highly beneficial to have guaranteed customers when competing in an industry where product pricing is unpredictable.
Market condition of key consumers helps determine ATI profitability
The main consumers of ATI's products--such as the aerospace and defense, energy, and automotive industries--are subject to many economic forces that combine to make demand for their own products cyclical. Economic downturns can reduce consumption of automobiles or airplanes, for example, thereby reducing demand for ATI's goods. However, due to record backlogs in Boeing, Airbus, and their engine manufacturers, the demand for titanium compounds is expected to remain strong. Demand for cars has fallen because of the high oil prices, which reduces the automotive industry's demand for ATI's goods. Other factors that can weaken demand for ATI's metals include currency fluctuations, industrial overcapacity, and the availability and pricing of substitute goods.
Comparison to Competitors
ATI's main competitors within the specialty metals industry include Titanium Metals (TIE), RTI International Metals (RTI), Carpenter Technology (CRS), and the Russian firm VSMPO-AVISMA, which is the world's largest titanium producer by volume. Titanium is a key product for ATI; the company has invested over $800 million to expand current titanium sponge processing plants across the country in the past three years. Moreover, titanium production accounts for just under a fifth of ATI's revenue, the most for any single one of ATI's metals. These companies produce many kinds of metals besides titanium, creating substitute goods for ATI's products.
References
| |||||||
