Analysts push for more cash returns
Applied Materials dividend may pressure Novellus, Lam
By Dan Gallagher, MarketWatch
Last Update: 5:48 PM ET March 23, 2005
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SAN FRANCISCO (MarketWatch) -- Applied Materials Inc.'s declaration Wednesday of its first-ever dividend may pressure other firms in the semiconductor equipment space that are sitting on fat cash hoards, some of which investors would like to see returned.
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In an announcement before its annual shareholders' meeting Wednesday, Applied Materials (AMAT: news, chart, profile) set a quarterly dividend of 3 cents per share, payable on June 8 to all shareholders of record as of May 18. See full story.
The Santa Clara, Calif.-based company also expanded a previously announced share buyback program. The new program allows the company to buy back up to $4 billion in stock over the next three years - up from it original limit of $3 billion.
The moves come after a month of pressure from Wall Street analysts, who have pushed Applied Material to make better use of its cash base, which totaled about $6.4 billion as of Jan. 30. KLA-Tencor Corp. (KLAC: news, chart, profile) announced its own dividend last month.
Novellus Systems (NVLS: news, chart, profile) and Lam Research (LRCX: news, chart, profile) could be next in line. In a 56-page report released Monday entitled "Why stash the rising cash?" Deutsche Bank analyst Stephen O'Rourke said the four largest companies in the chip equipment sector are sitting on a total of $10 billion in cash, which he said raises questions about "asset bloat."
"A cash buffer beyond operational needs, insurance for industry cyclicality, and potential acquisitions bring the efficacy of cash use into focus," O'Rourke wrote. "At the high end, we believe more than $7 billion can be distributed either as a special dividend or used for share repurchase to enhance investor value."
Novellus had about $588 million in cash and short-term investments on its balance sheet at the end of 2004, while Lam Research had nearly $650 million, according to those companies' financial statements.
Pressure on the sector stepped up after Feb. 15, when KLA-Tencor declared its own dividend and expanded share buyback program. At the time, analysts said limited growth prospects in the sector meant companies should consider returning more cash to shareholders.
"The announcement settles the long-winded debate of whether large, well-endowed equipment companies should be returning some cash to shareholders as growth prospects (and uses of cash) diminish," Jefferies & Co. analyst Cristina Osmeña said in a mid-February report. "While KLA continues to deliver improving profits cycle to cycle, Applied Materials has not." |
