Steve O., On the Samsung Spending Increase:
Yeah, but it is not like AMAT has a presence with Samsung ... they probably won't see dollar one of that incremental $600mm ... in fact, I have heard that Samsung is demanding that AMAT give them the $2.2Bn of C&E AMAT has on its balance sheet ...
Moreover, I would argue that any bump-up in capital spending by Samsung is incredibly bearish for the WFE industry ... The more money that Samsung spends, the more likely that the average DSO will increase for the WFE companies ... as we know how deliquent the Korean payment cycle is ... in fact, AMAT's DSO may go up by a day or two to 71 or 72 days (don't have my notes, but recall that it was at 70Days) ... such a stratospheric rise in A/R days would have a devastating effect on AMAT's business model ...
As importantly, if Samsung sees the demand required to tick-up spending, it is possible that MU follows-on with some more orders ... this could lead to worse INV performance ... by my calculations, if MU and Samsung both place orders, this could lead to a situation where sequential inventory actually increases ... this could jeopordize the 3.75x's number if the revenue increase is not large enough (say, less than a 51% sequential increase ... which is the lowest level deemed acceptable by the Analyst Community) ...
Just to add additional fuel to the fire (as if we need it at this point): I could also forsee a situation where INTC also releases some additional capital ... along with NEC ... TXN ... TSMC ... UMC ... STM ... SNE ... Hitachi ... Such an environment appears to be evolving ... and this is very negative for AMAT and the WFE industry in general because it may lead to a firmer pricing environment ... which could translate into a CPI/PPI increase down the road ... which the FED may respond to with a 25bpts increase in rates ... and that could crush the S&P500 multiple ... which would also knock down AMAT's share price ...
Rationale, because of AMAT's slow growth in bookings (only +21.6% annualizing last quarter) and AMAT's lack of profitability (meager 17% net to sales) ... and awful cash flow characteristics ($241mm last Q ... couldn't even get to $250mm ... come on ...) ... AMAT's multiple should merit at least a 20% discount ...
This discount could widen even further if AMAT has the temerity to improve its GM% to 50%+ while improving its 33% share of the market ... because that could draw the ire of the Justice Department ... then, we could have the litigation cloud hanging over our heads ...
Frankly, I can not paint a more negative picture for AMAT and the industry.
--Duker |
