January 29, 2009, 11:11 am
Applied Materials: Is This The New Normal?
Posted by Eric Savitz
Applied Materials (AMAT) shares are down sharply this morning, pressured by an ugly earnings report last night by rival Lam Research (LRCX) and a bearish research report by Auriga USA analyst Daniel Berenbaum.
Berenbaum this morning launched coverage of Applied this morning with a Sell rating and an $8 price target. “By now it’s no surprise that business conditions are weak, but our analysis suggests that the depth and duration of what we see as a secular - not cyclical - correction in business levels is still not being discounted by the stock,” he writes in a research note. “AMAT has a strong product lineup and a solid balance sheet, and solar is a wild card that could drive upside, but our work suggests that the core business is running at extremely low levels, and is likely to remain there into CY ‘10. It’s difficult to see how AMAT stock will not weaken from current levels in this environment.”
For the October 2009 fiscal year, Berenbaum sees revenue of $4.425 billion, which would be down 45.6% from fiscal 2008. The Street consensus is $5.7 billion. He sees a loss for the year of 16 cents a share; the consensus is for a profit of 19 cents a share. For FY 2010, he sees revenue recovering to $5.575 billion, with profits of 17 cents a share; the Street expects $7.27 billion and 66 cents.
Berenbaum contends the bulls on the stock expect a bottom to fundamentals in the March quarter. But Berenbaum doesn’t see it. “We recognize that it’s always darkest before the dawn, but our checks suggest that the entire semiconductor manufacturing food chain is preparing for a multi-year secular contraction in business levels, which makes a near-term bottom a moot point in terms of stock valuation,” he writes. “We expect a sustained reduction in capital intensity as the memory industry restructures, foundries and [device manufacturers] work through significant over-capacity, and technology buys slow as the tail to Moore’s Law gets longer…our work suggests that AMAT’s current sales run-rate is the new reality.”
AMAT this morning is down 74 cents, or 7.1%, to $9.64. |
