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

To: StanX Long who wrote (33721)	1/13/2000 10:30:00 PM
From: A. Edwards	Read Replies (1) \| Respond to of 70976

Comments on ETEC acquisition: Salomon Smith Barney January 13, 2000 After the close of the market yesterday, Applied announced its intention to acquire Etec Systems (ETEC, $50, 1H, Price Target - $64) for approximately $1.8 billion in a pooling of interest merger. Applied will exchange 0.649 shares of its stock for each share of Etec (22 million shares outstanding). We believe the transaction is a win-win for both companies. The Etec acquisition is a positive for Applied due to the following reasons: 1) fast growth market, 2) high margins, 3) high barriers to entry, and 4) synergies with inspection business. We believe that the photomask pattern generation (PG) equipment market will post growth rates faster than the industry due to the rapidly changing technology requirements at 0.18 micron and below linewidths (which typically necessitate optical proximity correction (OPC) and phase shift mask (PSM) enhancements). While historically, the growth rates of the photomask equipment market have been 14%-15%, we believe that we will see slightly faster growth rates as we begin to recover from the 1998/1999 downturn. Etec's pattern generation equipment typically sells for between $8-13 million and offers high margins (Etec has achieved gross margins in the high 50% range at the peak). Etec is also the leader in its market with a 70% plus market share and we believe that there are significant barriers to entry. Etec typically spends more in R&D in any given year than the revenues of its competitors (Hitachi, JEOL, Micronics, Leica). Finally, 3 1/2 years after acquiring Opal and Orbot, AMAT has had little success in wafer/photomask inspection. The Etec acquisition allows the company to work towards developing a complete end-to-end solution as opposed to selling just the point tools. "Total Solutions" has been one of the themes that AMAT has used in the front-end, and with the Etec acquisition, the company has the right tools to deliver similar capabilities in the photomask manufacturing area. Given the complexities involved in writing photomasks, we believe that the Etec acquisition potentially can fulfill a very important market need. From Etec's point of view, the acquisition premium, the access to resources and the brand name provided by Applied make this a compelling transaction. We believe that this is a win-win transaction for both companies.