A nice analysis from Harry Lew on the Technical Analysis For Shorts and Longs thread.
Message 17417058
Star survivor: Applied Materials
If you want to see how it’s done, take a look at Applied Materials (AMAT, news, msgs), a long-time champ at exploiting the down part of the cycle. I’d argue that this company’s extraordinary success in the very cyclical semiconductor equipment industry is based on a strategy of being prepared to take advantage of the inevitable downturn.
For example, look at what happened to the research, development and engineering budget at Applied Materials as sales went into the tank in fiscal 2001, dropping to $7.3 billion in 2001 from $9.6 billion in 2000. Instead of slashing R&D, the company actually hiked spending to $1.2 billion in 2001 from $1.1 billion in 2000.
Where did the money go? Some went into playing catch-up in the copper interconnect market. Applied Materials controls 80% to 85% of the aluminum interconnect market but is weaker in the new copper technologies. Similarly the company invested in the tools market to match a new competitor, Novellus Systems (NVLS, news, msgs) that was threatening to take market share.
Some of the money went toward developing products designed to bury smaller or less deep-pocketed competitors. With the semiconductor industry working frenetically to get new 0.13 micron equipment up to speed, Applied Materials upped its spending on even smaller, next generation 0.10 micron gear. That spending should give Applied Materials the ability to dominate the next generation of equipment for squeezing more circuits on a chip just as past spending gave the company the current lead in equipment to process larger, more cost-effective 300mm silicon wafers.
So on past and current track record, I’m giving Applied Materials membership in my bubble survivor club. The company has met the test of the down cycle again, I believe.
But Applied Materials is an easy pick. The company is famous among investors for its aggressive down-cycle strategy, and it has pursued this course through enough similar down cycles in the past so that investors know it works. Now onto the hard choices: companies with less experience, and less of a track record, at making hay while it rains buckets. |
