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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Henry Eichorszt who wrote (33115)	11/10/1999 11:31:00 PM
From: A. Edwards	Read Replies (2) \| Respond to of 70976

AMAT: RELENTLESS PURSUIT OF GROWTH Salomon Smith Barney Wednesday, November 10, 1999 Applied Materials delivered a very upbeat presentation at the Boulders conference yesterday with the main highlights being 1) good visibility through 1H2000 for continued order recovery, 2) strong focus on new market penetration in etch/PDC/TPI/ion implant 3) new market creation in areas such as service and support, and 4) process module solutions approach to equipment sales, which should allow the company to continue grow faster than the industry growth. Upbeat presentation at the Boulders conference. Jim Morgan, Chairman and CEO of Applied Materials, delivered an upbeat presentation at the Boulders conference sketching out the company's upcoming 3-5 years. While there was little discussion about the October quarter (given that AMAT is in its quiet period), the tone was upbeat and we see upsides to the Street order estimates of $1.5-$1.6 billion and consensus earnings estimate of $0.64 (SSB). Since the last quarterly conference call in August 1) DRAM prices have recovered, 2) Semiconductor companies are developing more conviction and are more open to placing orders. We expect the commentary on the call to be positive and to call for continued order growth through 1H2000. The Relentless Pursuit of Revenue Growth One of the biggest surprises of the company's presentation was the projected revenue growth possibilities from about $5.0 billion in 1999 to $40-$60 billion in 2004 (yes, $40-$60 billion). AMAT has always set very high goals for itself, and it should not be surprising that they have set such as high goal. Over the last five years, analyzing the long term projections have proved to be a futile exercise (remember the semiconductor equipment industry was expected to be $60 billion in 2000, and not the $30 billion size that is expected to be now). Yet, what this graph shows is the relentless drive of a company that is not resting on its laurels and is striving to find new opportunities in terms of market share growth and new market creation. AMAT's TSP and TPM Programs Are Generating Excellent Interest Applied introduced two new service initiatives in July 1999, Total Support Package (TSP) and Total Parts Management (TPM), aimed at helping customers lower operating costs associated with servicing Applied's equipment and carrying spare parts inventory. TSP is the more comprehensive of the two initiatives by providing complete service and spare parts management for a fixed price per system. The contract covers all maintenance and spare parts (which eliminates the need for the customer to carry spare parts inventory), along with guaranteeing a price per wafer pass. The goal of TSP is to improve uptime, throughput, and lower costs. TPM turns the burden of managing spare parts inventory from the customer to Applied. This provides advantages in more efficient parts management and reduced inventory/administrative costs associated with managing spare parts inventory. Customers simply pay for the parts consumed. The goal of TPM is to lower customers' spare part costs. Given that system differentiation can be difficult, we believe service and support is a key element for customers when selecting an equipment vendor. The advantages offered by these service initiatives will give potential customers more reason to switch to Applied, which translates into increased market share. Over the last 5 months, the company has received excellent interest in both initiatives from both emerging semiconductor companies in Asia and large US IDMs. Service/Spares Revenues Can Also Provide A Nice Buffer With more semiconductor companies focusing on their core design/process integration/marketing competency, we believe that there is a clear market opportunity for TPM and TSP. We estimate that AMAT will derive close to $1 billion in service and spares revenue in 1999 (with gross margins in the high 30's, but a higher-than-corporate-average operating margin contribution). Service/spares is also a less cyclical revenue stream, and with the strong growth potential should provide the company with a good buffer to offset any revenue/bookings perturbations.