QUOTE AND NEWS
TheStreet.com  Nov 20  Comment 
Tickers: IBM, LVS, BLL, MU, AMAT Must-See Charts: How to Trade IBM, Micron, Applied Materials, Sands, Ball Corp. BALTIMORE (Stockpickr) -- We've had a pretty innocuous week so far in the markets, the big indices adding a few dozen basis points...
Benzinga  Nov 14  Comment 
Applied Materials (NASDAQ: AMAT) reported its fourth quarter earnings on Thursday. Shares of the company are up 1 percent. Below are some key highlights from its conference call. Performance and Strategies: • Delivered revenue and earnings...
Benzinga  Nov 14  Comment 
Applied Materials, Inc. (NASDAQ: AMAT) reported results Thursday for its fourth quarter and guided its first quarter lower. Shares fell after the earnings announcement but rebounded by Friday afternoon, trading at $22.89, up 1.19...
Jutia Group  Nov 14  Comment 
[at TheStreet] - The following Applied Materials (AMAT) conference call took place on November 13, 2014, 04:30 PM ET. This is a transcript of that earnings call: Read more on this. Applied Materials, Inc. (AMAT), valued at $27.86B, opened this...
Benzinga  Nov 14  Comment 
In a report published Friday, Bank of America analyst Krish Sankar reiterated a Buy rating on Applied Materials, Inc. (NASDAQ: AMAT), and raised the price target from $25.00 to $26.00. In the report, Bank of America noted, “AMAT reported...
Benzinga  Nov 14  Comment 
Abengoa SA (NASDAQ: ABGB) shares dropped 50.30% to $7.48 in pre-market trading after falling 10.42% on Thursday. CSX (NYSE: CSX) shares slipped 7.70% to $33.81 in pre-market trading after falling 0.38% on Thursday. SINA (NASDAQ: SINA) fell...
newratings.com  Nov 13  Comment 
SANTA CLARA (dpa-AFX) - Semiconductor equipment maker Applied Materials Inc (AMAT), Thursday reported an increase in fourth-quarter profit, driven mainly by a 14 percent climb in sales. Earnings coming in line with Wall Street estimates, while...
Wall Street Journal  Nov 13  Comment 
Applied Materials Inc. said its October-quarter profit rose 58%, but the company expects earnings excluding items to be below analyst projections for the current quarter.
TheStreet.com  Nov 13  Comment 
NEW YORK (TheStreet) -- Applied Materials shares are down 2.7% to $22 in after-hours trading on Thursday after the equipment manufacturer for the solar photovoltaic industry reported its fourth quarter earnings results after the closing bell...




 

Applied Materials (NASDAQ: AMAT) is the world's largest supplier in the semiconductor equipment market. AMAT sells semiconductor fabrication tools to chip makers and offers tools for 11 of the 13 most significant steps of chip manufacturing. AMAT has a larger portfolio of semiconductor fabrication tools than any other company and competes mostly against smaller companies that specialize in specific areas of the fabrication process. AMAT's vast resources allow it to remain competitive in nearly all of its production segments. However, AMAT's operations cover many areas of the semiconductor equipment industry, making AMAT vulnerable to industry cycles. The last major downturn of the semiconductor industry was in 2000.

As chips become more complex the steps in the manufacturing process increase and the technology to complete those steps change. This provides AMAT with more business by offering products for the additional steps, but also exposes AMAT to greater competition from its specialized competitors. AMAT spends over $1 billion on R&D in order to remain on the cutting edge of semiconductor equipment technology. The semiconductor industry, along with AMAT, is vulnerable to general economic conditions, more specifically GDP growth. Semiconductor sales have shown about an 80% correlation with GDP growth trends, meaning a downturn in GDP growth could very likely be accompanied by a downturn in semiconductor sales.

Business Overview

Business & Financial Metrics[1]

In 2009, AMAT incurred a net loss of $305.3 million on revenues of $5.01 billion. This represents a reversal from 2008, when the company earned $960.7 million on revenues of $8.13 billion.

Business Segments[2]

  • Silicon (39.1% of total revenues): This is the largest and most important segment for AMAT. This segment is responsible for making the various tools and equipment used in the different steps of the semiconductor manufacturing process. The Silicon segment is the bread and butter of the company, although general growth potential is much lower than the Display or Adjacent Technologies segments. AMAT is essentially the only company that can offer a product for nearly every step of the chip manufacturing process. AMAT covers the following chip manufacturing steps:
    • Deposition
    • Etch
    • Rapid Thermal Processing
    • Chemical Mechanical Planarization
    • Metrology and Wafer Inspection (Process Control)
    • Mask Making
  • Applied Global Services (27.9% of total revenues): This segment produces spares, provides services, and replaces old equipment models for its customers.[3]
  • Display (10.0% of total revenues): This segment sells products for manufacturing LCDs for TVs, personal computers, and other video-enabled devices.[4]
  • Energy and Environmental Solutions (23.0% of total revenues): This segment sells equipment for fabricating solar PV products, coating systems, and energy-efficient glass manufacturing equipment.[5]

IMAGE:AMAT-Segments2009.jpg[2]

Trends and Forces

Threat from semiconductor industry's cyclicality

AMAT is hands down the largest maker of equipment used in the production of semiconductors. It has engineers in nearly every fab in the world and its equipment is used in almost every sector of the semiconductor industry. As a result, AMAT is tied more to the ups and downs of the semiconductor industry as a whole than to specific sectors. The semiconductor market is notoriously cyclical. The semiconductor industry is affected by the fluctuating demand for PCs and cell phones, and by the rest of the electronics market. The demand in up cycles is so high that the chip manufacturers can't keep up. Similarly, if electronic sales, particularly PC sales, are slow, demand for chips can plummet. The semiconductor industry is at the whim of consumer demand more than corporate demand. This fact also adds to volatility in demand. If semiconductor companies anticipate a downturn in the industry then AMAT will likely feel the pressure from capital expenditure cutbacks. Although, the backdrop of this high market volatility has been continual growth. Over the last 20 years the semiconductor industry has seen about a 13% average annual growth rate.

Opportunities from increasing chip complexity

Not only does AMAT benefit from a greater demand in semiconductor chips, it also benefits from increased complexity in chip design. Chips are getting smaller and smaller, while their design is getting more complex: according to Moore's Law (derived by Gordon Moore, co-founder of Intel), the number of transistors per square inch on an integrated circuit should double about every two years.

This has two effects. First, smaller size means that chips can now be used in a variety of new ways, creating higher chip demand. (These days, even something like a running shoe can sport chips.) Secondly, this increasingly complex chip design requires the addition of new steps to the manufacturing process, which means that AMAT can provide new or additional tools and equipment to complete those steps. At the same time, however, increasing complexity (and thus specialization in manufacturing) creates opportunities for AMAT's competitors, who are usually focused on specific areas of the manufacturing process. Rising costs of fabs and chip designs could also deter many chip manufacturers from investing in new chip designs--hence the prevalence of outsourcing and of "fabless" semiconductor companies.

Exposure to Electronics market health

The ebb and flow of the electronics market can have a significant impact on AMAT sales. This is because the semiconductor industry responds to the various production cycles for computers, video game consoles, cell phones, and other major electronics. This, in turn, affects the demand of AMAT's products and services. The introduction of advanced systems such as Microsoft Vista, the next generation video game consoles, and the iPod/iPhone called for a high demand of more complex chip designs from semiconductor manufacturers. The introduction of the newest electronics can balloon sales, but a significant slowdown can similarily cause a deflation of revenues.

Dependence on Asia

AMAT, along with the majority of the semiconductor industry, depend on the business and resources of Asia. Four out of the five largest revenue regions for AMAT come from Asia: Taiwan, Korea, Japan, and Asia-Pacific (which includes China). These four regions account for 74% of AMAT's revenue. The reason for this is two-fold: 1) Asia, in particular Japan, purchases a massive amount of electronics, and 2) Cheap land and outsourcing has created a proliferation of fabs and foundries (semiconductor manufacturers that make chips for other companies). Many semiconductor companies have a strong presence in Asia, but being well developed in China could prove prudent considering the high growth potential that the country has.

Risks of outsourcing to Taiwan

An increase in outsourcing to Taiwan has made Taiwan an important factor for AMAT. Any instability in Taiwan could seriously disrupt the semiconductor industry. Taiwan is relatively inexpensive, but an increase in construction costs for fabs (semiconductor factories) could have an impact on the semiconductor industry as a whole. Much of AMAT's business is dependent on the capital expenditures of the semiconductor manufacturers. The more expensive it is to construct a fab the less money the manufacturer has to spend on AMAT's fabrication tools, and vice versa.

AMAT receives business from whoever owns the fabs, it just so happens that outsourcing has made it so many of the companies with fabs are in Asia. Many semiconductor companies are becoming "fabless" which means they are completely outsourcing their chip manufacturing in order to eliminate the huge overhead cost of fabs. This outsourcing is primarily going to Asia, in particular Taiwan. For example, Taiwan Semiconductor has been a major customer for AMAT because Taiwan Semiconductor owns fabs in Taiwan that handle much of the outsourced manufacturing of semiconductor companies. As a result of companies like Taiwan Semiconductor and the outsourcing to Asia, AMAT receives the largest portion of its business from Taiwan, over $2 billion or 22% of sales.

Competition

Novellus Systems (NVLS) is one of the top competitors to AMAT. Novellus operates in Chemical Mechanical Planarization (CMP), but is most competitive in deposition, one of the largest segments in the manufacturing process, by market value. AMAT's formidable resources have allowed it to command the lead rank in the various deposition markets, but Novellus has high quality products especially in plasma deposition. Novellus’s entry into CMP has been difficult due in part to pricing pressure from AMAT, but primarily it is because AMAT simply has a more efficient and effective tool to complete the process.

KLA-Tencor (KLAC) is the leading process diagnostics and control (PDC) company in the semiconductor equipment industry. In 2005, KLA held a 44.5% share of this market, while AMAT held a 9% share. This is an important market because as chips become smaller and more complex, the inspection of chips is going to be increasingly important. The minimization of defects will save companies lots of time and money, so they will invest in PDC. KLA has the highest R&D/sales ratio of the above companies, and devotes all its resources to PDC, making it very difficult for AMAT to gain ground.

AMAT also competes against Lam Research (LRCX).

References

  1. AMAT 2009 10-K pg. 52  
  2. 2.0 2.1 AMAT 2009 10-K pg. 84  
  3. AMAT 2009 10-K pg. 35  
  4. AMAT 2009 10-K pg. 36  
  5. AMAT 2009 10-K pg. 37  
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