Standard & Poor's today raised its corporate credit rating, senior debt rating, and bank loan rating on Applied Materials Inc. to triple-'B'-plus from triple-'B', reflecting strong profitability and renewed growth prospects for this manufacturer of semiconductor processing equipment.
Applied Material's ratings reflect its strong business position, recurring revenues, and conservative capitalization, offset by the challenges of technology transition, significant capital expenditure requirements, and a volatile served market. Applied Materials is the leading manufacturer of equipment used to process silicon wafers chemically, an essential phase of the semiconductor fabrication process.
Applied Material's revenues reflect its broadening product base, as well as underlying semiconductor volatility. Revenues are expected to be lower in fiscal 1997 than the $4.1 billion reported for the year ended September 1996. However, new order growth increased 33% in the quarter ended July 27, 1997, reflecting the recovery in semiconductor capital equipment spending. In addition, Applied Materials has maintained strong profitability during this downturn; operating margins (excluding extraordinary items) for the nine months ended July 27, 1997 were 17.5%.
Cash balances in excess of $1 billion are ample. This amount, supplemented by a $240 million unused revolving credit agreement that expires in February 2000, is expected to fund the company's expansion as market conditions strengthen. Debt leverage of less than 15% (including capitalized operating leases) is modest.
OUTLOOK: STABLE
The company's industry leadership position, broadening business base, and conservative financial profile provide downside rating protection, while volatile industry conditions limit the potential for rating improvement. -- CreditWire
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