All the analysts are saying that the job cut is within the expectation,
and should maintain AMAT's leading position. Here are some of the comments. Enjoy.
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01:25am EDT 26-Aug-98 Morgan Stanley\DW (Deahna,J/Pelayo,S (415)576-2307) AMAT
APPLIED MATERIALS : AS EXPECTED, WORKFORCE REDUCTION; MAINTAIN ESTIMATES AND...
Applied Materials (AMAT): As Expected, Workforce Reduction; Maintain
Estimates and Outperform Rating
Jay Deahna/Steven Pelayo (650) 233-2631/2632 Date: August 26, 1998
Industry: Semi. Cap. Equip. Type: Company Announcement
______________________________________________________________________
Rating: Outperform Price: $31
52-wk Range: 52 - 25 Price Target: $38
__________________________________________________________________
KEY POINTS
-Yesterday after the close, Applied Materials announced plans to
reduce the company's global workforce by approximately 2,000
employees, or 15% in order to lower its cost structure during the
current downturn. This action was in line with the company's guidance
given during its F3Q98 (July) conference call. Consequently, we are
maintaining our forward revenue and EPS estimates.
-Management expects the restructuring plan to be completed in F4Q98
(October) and including the associated non-recurring restructuring
costs, will result in a net loss for the quarter. However, from a
continuing operations perspective, we believe the company will
maintain profitability and report F4Q98 EPS of $0.03, in line with the
current First Call consensus estimate.
-We believe Applied is approaching a sustainable booking and revenue
run-rate for the current downturn. We see improved semiconductor
industry revenue growth and equipment bookings as two key drivers
likely to minimize downside for AMAT shares and allow the stock to
trend up or trade in a range along with semiconductor stocks. As a
result, we are maintaining our Outperform rating and $38 stock price
target.
DETAILS
-Approximately 70% of the headcount reductions will come from
Applied's Austin and Santa Clara-based operations. The remaining
portion will be eliminated from other locations worldwide.
-Applied has been steadily reducing headcount throughout calendar
1998. As of F1Q98 (January) headcount was approximately 16,200. In
F2Q98, headcount was reduced to 15,500, and in F3Q98 it was 14,000.
The additional 2,000-workforce reduction announced yesterday should
bring total headcount down to approximately 12,000 employees, a 25%
decline since the beginning of the year.
-In addition to headcount reductions, executive salaries are being
reduced by 10 percent.
-We believe these cost reduction plans will likely lower Applied's
break-even revenue run-rate to approximately $600 million and allow
the company to maintain profitability throughout the downturn.
Management's guidance for F4Q98 called for bookings of approximately
$600 million, revenues in the $625-675 range, and EPS, excluding one-
time restructuring charges, between $0.02 and $0.05.
-From a longer term perspective, we believe Applied's dominant market
position and strong product pipeline will continue to drive market
share gains during the downturn and position the company for
significant growth when the industry rebounds.
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