Applied Materials: Equipment Sector To Post 40-45% Growth, Prudential Target $175
The stellar growth in the telecommunications industry is causing demand for semiconductors to soar to new heights. Chip-equipment maker Applied Materials, considered an industry leader, is expected to ride the growth wave as the semiconductor sector is expected to post 40-45% gains for 2000. With the enthusiastic tone on Wall Street bolstered by an aggressive acquisitions campaign, the company is poised for substantial upside in 2000. Prudential Securities has revised its one-year target to $175 from $110.
Toronto, ONT, March 27 /SHfn/ -- The surge in demand for telecommunication devices has certainly catapulted telecommunication stocks to new heights over a short period of time. But, there are other sectors that are expected to experience strong growth rates as a result--including the semiconductor sector.
As a leader in the semiconductor wafer fabrication space, Applied Materials [AMAT] is poised to rally as a result of the soaring demand for chips. The upside potential is enough that March 25th saw Prudential Securities revise its 52-week target price upwards from $110 to $175.
"The industry appears healthy and is poised for substantial upside going forward to 2001."
As the telecommunications sector takes off with a roster of emerging companies developing innovative products to enhance existing communication devices, these new platforms need to be powered by high-quality, high-powered chips. The telecom sector has fueled the demand for chips, especially for companies who supply semiconductors and wafers to the manufacturers. And Applied Materials is at the top of many manufacturers' list for supplying the goods.
Prudential Securities estimates that the equipment sector is expected to post a growth rate in the 40-45% range in 2000, declining to 30-35% in 2001. Capital equipment providers such as Cognex [CGNX] have recently reiterated their confidence by noting that the industry appears healthy and is poised for substantial upside going forward to 2001.
The main drivers in this sector are the transition to smaller geometries, the growth in copper-produced devices, and the gradual transition to 300-millimeter wafers. Also, the political and economic environment in Taiwan for its foundries will be central in sustaining current demand levels. Prudential Securities forecasts that Taiwan will end the year with more than one-third of the worldwide spending on capital equipment.
One bullish indicator is a foundry's capacity utilization rate. With Applied Materials currently operating in the 105% range, considered exemplary relative to its rival Novelus [NVLS], it is aggressively securing additional market share which many view as a cut-throat competitive practice. However, Applied Materials has several sources of differentiation that sets itself apart from the pack.
The company has an extensive product offering, capacity buying power at the .18 level, and has demonstrated tool-by-tool production process for its chips.
"Wall Street and the powerbrokers are raising their targets."
The company has the enthusiastic support of Wall Street and the powerbrokers are raising their targets. For example, analyst Byron Walker of Warburg Dillon Read has raised his EPS estimate for fiscal 2000 from $2.16 to $2.44, while revising his 2001 EPS estimates from $2.84 to $3.31. In addition, Prudential Securities research associate Greg Wagenhoffer has conducted a preliminary revaluation and concluded that, "we could end up in the $175 range, especially going forward in the next and following quarter." However, investors should pay heed to some salient risks going forward.
John Colligan, an analyst at Olde Discount Corp. argues that there are typically time lags between installing the equipment and eliminating all the bugs. There is also the possibility of an industry slowdown since it takes time to digest change. And there exists the issue of excess capacity--as you move to larger wafer sizes, you add to capacity.
The company's positioning strategy is to continue to make aggressive investments, most recently offering to buy E-Tek Systems (subject to shareholder approval), which holds 75% of the photomask market, and Consilium, which operates in the CMP market.
Given the surge in demand for high-quality, high-speed chips in a segment of the electronics industry that has good strength relative to the broad market, investors should consider the purchase of Applied Materials shares.
stockhouse.com
Seems to be the most bullish article on semiconductors this week. Neat thread. I'll post articles on the sector as I find them.
Jack |
