Taken from the AMAT thread:
forbes.com
One Down, more to follow
By Om Malik
NEW YORK. 5:08 PM EST-Jerry Fleming has been tracking the semiconductor-equipment industry for over two decades, waiting for the industry to consolidate.
On Jan 12 Applied Materials (nyse: AMAT) announced that it is buying ETEC Systems (nasdaq: ETEC) for $1.8 billion. Fleming thinks the merger will finally catalyze the much-anticipated consolidation. "We are fast coming to an era of 800-pound gorillas," says Fleming who tracks the business for Boston-based brokerage, Tucker Anthony Cleary Gull.
Applied Materials announced that each share of ETEC will be exchanged for 0.649 shares of Applied, and based on Jan. 12?s closing price, Applied is paying $82 a share for ETEC. "If you are an ETEC shareholder, this morning you are pinching yourself," says Mark Fitzgerald, who tracks the semiconductor equipment business for brokerage, Merrill Lynch.
Fitzgerald is among a growing community of Wall Street analysts who believes that, sooner or later, half a dozen companies with global presence such as Applied Materials and Novellus (nasdaq: NVLS) will survive.
Among the companies being touted as likely takeout candidates by Wall Street include SpeedFam-IPEC (nasdaq: SFAM). "Given that Novellus is moving heavily into the copper-based chip equipment business, it makes SpeedFam a good fit with them," says Fleming.
Novellus currently makes nothing but deposition equipment, which is used to deposit a layer of metal on a silicon wafer. But to continue growing and to remain competitive with Applied Materials, the company eventually needs to broaden its offerings. SpeedFam-IPEC makes equipment for CMP, a process step used in sequence with deposition. Second, SpeedFam and Novellus have already formed a loose alliance in competition against Applied Materials.
Susan Crossley, a semiconductor equipment analyst with Van Kasper shares the view of her peers on Wall Street and points out that from a strategic standpoint, SpeedFam-Novellus is a marriage made in heaven.
If complementary product lines were not enough, she says, there is a good management fit between both companies as well. SpeedFam's management has strong links to Novellus. Novellus CEO Rick Hill is on the board of SpeedFam.
There is speculation about more chip equipment companies as well.
Gasonics (nasdaq: GSNX) is another company that could be a good acquisition candidate, says Fitzgerald.
In fact, most analysts believe Novellus can turn out to be one of the more aggressive acquirers and could team up with the likes of Mattson Technology (nasdaq: MTSN), and Genus (nasdaq: GGNS).
Crossley does not rule out Applied Materials when it comes to making further acquisitions. Genus, and Nanometrics (nasdaq: NANO) are two companies that make sense for Applied Materials. ADE Corp. (nasdaq: ADEX), Veeco (nasdaq: VECO), CFM Technology (nasdaq: CFMT), FSI (nasdaq: FSII), and Semitool (nasdaq: SMTL) are some of the smaller names ready for picking.
With their stocks trading at sky-high multiples, companies such as Applied, Lam Research (nasdaq: LRCX) and Novellus can clearly go out and mop up smaller names, Fitzgerald says. Applied Materials, for instance, is trading at $125 a share, or 38 times its fiscal 2000 estimated earnings of $3.27 a share, while Novellus is being valued at 34 times fiscal 2000 earnings of $4.12 a share.
While the climate and market is ready for consolidation--now all we can do is wait for the deals to happen. |
