07:16am EDT 26-Aug-98 Lehman Brothers (Edward C. White, Jr., CFA 1(212)52) AMAT
Applied Materials: Announces Restructuring and Layoff, As Expected
Ticker : AMAT Rank(Old): 1-Buy Rank(New): 1-Buy
Price : $31 7/16 52wk Range: $53-26 Price Target (Old): $50
Today's Date : 08/26/98 Price Target (New): $50
Fiscal Year : OCT 10 Uncommon Values
EPS 1997 1998 1999
QTR. Actual Old New Old New
1st: 0.24A 0.52A 0.52A 0.15E 0.15E
2nd: 0.27A 0.37A 0.37A 0.25E 0.25E
3rd: 0.38A 0.19A 0.19A 0.45E 0.45E
4th: 0.49A 0.02E 0.02E 0.65E 0.65E
Year:$ 1.38A $ 1.10E $ 1.10E $ 1.50E $ 1.50E
Street Est.: $ 1.12E $ 1.10E $ 0.67E $ 0.66E
Price (As of 8/25): $31 7/16 Revenue (1998): 4.0 Bil.
Return On Equity (98): 13.3 % Proj. 5yr EPS Grth: 25.0 %
Shares Outstanding: 378.1 Mil. Dividend Yield: Nil
Mkt Capitalization: 11.60 Bil. P/E 1998; 1999 : 27.9 X; 28.6 X
Current Book Value: $8.62 /sh Convertible: No
Debt-to-Capital: 15.8 % Disclosure(s): A, C
ú Yesterday, Applied Materials announced a 2000-person, 15% layoff. The restructuring
was expected-unlike other semiconductor equipment companies Applied had avoided a
layoff, but had indicated that one might be necessary.
ú The magnitude of the layoff was speculated to be between 10% and 25%. We think a
10% reduction would not have reduce costs to a sufficient degree, while a 25%
reduction would have signaled a longer than expected slowdown.
ú This move, with other actions, should help cut Applied's quarterly costs by $50
million. Applied's plan is to cut the breakeven sales level to $600 million; we
think it will get to close to this level for fiscal fourth quarter.
ú There are important developments going on outside of Applied Materials. For one,
chip companies are getting rid of old capacity, which we doubt will resurface later.
This should eventually help balance chip supply and demand.
ú We continue to recommend purchase of Applied Materials' shares, based on a prospect
for a recovery beginning early in fiscal 1999. We continue to think the company's
earning power in fiscal 1999 is well above the Street expectation. |
