AMAT Must Exit Solar, Etch, Says Credit Suisse
By Tiernan Ray Credit Suisse’s Satya Kumar today writes that he is more interested in shares of chip equipment maker Applied Materials ( AMAT) than he has been in the last five years since the company on June 19th named former Varian Semiconductor CEO Gary Dickerson its president. Dickerson came over with the company’s acquisition of Varian last November.
“Investors (us included) have a favorable view of Gary given his track record at VSEA and KLA-Tencor ( KLAC) over the last 10 years,” writes Kumar, who maintains a Neutral rating on Applied shares.
He thinks it’s possible Applied could reach $1.50 in earnings per share by 2015, which would be well above the 97 cents or so analysts are projecting for this year’s earnings.
But Kumar warns that such a development will take time and will require a substantial shift in strategy for the company, including exiting the solar energy technology business that has burned through $2.2 billion of cash so far:
A revamp of strategy is the most critical aspect for AMAT. We think AMAT needs to sell and exit its solar business, exit the etch business (we know this is a controversial call), restructure its display business and make more acquisitions in the inspection business. If AMAT did all these things, and the cycle co-operates a little bit, we can see AMAT approach a dollar fifty in EPS by 2015 […] We worry that if AMAT continues to try and improve the solar business or waits for a turnaround, it will continue to drain management’s focus away from the more critical battles in silicon […] AMAT needs to size the [display] business for a target 15% operating margin at $500mm annual revenues – which means AMAT needs to find ways to significantly lower its opex and COGS in the segment […] AMAT has tried for about 15 years now since 1998 to try and improve its etch business. However, back in the late 1990s, Lam Research ( LRCX) had a similar moment as AMAT is now having with Gary – back then Steve Newberry and Jim Bagley had just started to restructuring of LRCX […] all the hard work paid off for LRCX at the 300mm transition, and its market share started to rise, at the expense of AMAT.
Applied shares today are off 12 cents, or 1%, at $11.35.
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At the very least, AMAT needs to get rid of Solar! $2.2 Billion in shareholder money burned.
Oh, and get rid of Splinter too. He has done NADA for shareholders. |
