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

To: Proud_Infidel who wrote (35520)	6/21/2000 5:06:00 PM
From: Fred Levine	Read Replies (1) \| Respond to of 70976

Hot off the Merrill Lynch press... Orders just don?t let up; revenues to follow In the most recent quarter (April), Applied reported results essentially in line with consensus estimates. However, orders grew 19% sequentially to a record $2.93 billion. The results also included, for the first time, the recent acquisition of Etec Systems. We believe that the company could have reported further revenue upside in the quarter, if it had not been for delays from the ERP implementation, which we believe are now in the past. Looking forward, Applied also increased its projection from 46% to 53% for fab equipment sales growth in 2000 and over 40% in 2001. Applied also guided that the number of units of equipment shipped is expected to double from the fiscal first quarter to the fiscal third quarter. The upside in revenues is being driven by growing visibility into the plans of a broad base of semiconductor companies for increased capital spending in 2000. Applied has identified 13 new fabs in 2000 and 16 new fabs in 2001. Of the 16 new fabs in 2001, 7 are targeted to be 300 mm. New orders driven by advanced technology and capacity; Copper and 300 mm accelerate Applied expects that orders for the current quarter should be greater than $3 billion, possibly by a wide margin. Based on the three technology waves described above, orders and revenues should continue to grow for the remainder of the year and possibly for the next several years. 62% of the orders in the most recent quarter were for 0.18 micron and below. Seven customers placed orders for over $100 million, nine over $50 million, and 20 customers over $10 million, marking strong capacity buys. The company has shipped over 30 300 mm systems and expects stronger orders in the second half of 2000. Applied is also beginning to see the move to Cu from R&D to production as six customers have ordered all three components of the Cu interconnect module (barrier/seed, Cu plating, Cu CMP) for evaluation and R&D. This growth has accelerated since the beginning of the current quarter. All regions and products participate in upside Applied?s orders essentially mirror the capital spending by region around the world. Orders in the last quarter were geographically diverse, with Taiwan leading the pack at 25% of new orders; North America was 25%, Japan 15%, Europe 14%, Asia-Pacific 11%, and Korea 10%. Taiwan and Europe were particularly above expectations. In the current quarter, Japan is starting to tick up as well. DRAM orders as a percentage of sales decreased to 19% last quarter from 24% previously. The company?s bottoms up DRAM market analysis shows the market coming into supply-demand balance in the second half of 2000 and entering an under capacity mode by the end of the year. Thus, expect DRAM related orders to grow near year end. Foundry orders were strong at 32% of total orders, and based on capacity spending plans by major foundries, this trend should continue into 2001. What are they going to do with all that cash? Cash levels for the last quarter increased $369 million to a record $3.37 billion as the company continues to show superior asset management. Days sales outstanding declined slightly to 69 days from 71 days in the previous quarter. Inventory turns were also flat at 4.9x. Return on equity jumped to a record 36%. The company should continue to generate cash with strong fixed asset management over the remaining quarters of fiscal 2000. Investment Opinion Reinstating coverage with an Accumulate/Buy rating and a price objective of $120 Applied is executing well on delivering its broad product line and services, in our opinion. Customers count on Applied being a key supplier in each of its product segments, even if the customers want second sources for advanced equipment. The demand in the industry will be weighted toward foundries and logic near term with some growth in DRAM. Later in 2000 and 2001, strengthening DRAM equipment orders, 300mm, copper and other materials upgrades will start to supplement the growth in market. As this visibility increases, we expect Applied to reach a 30-35x P/E, in line with the company?s long term growth rate, on our CY2001 EPS estimate of $3.70. With potential upside from revenue growth and manufacturing efficiency, this could lead to a long term price of $120. Applied Materials (AMAT) is the largest supplier of semiconductor capital equipment in the world with leadership in Chemical Vapor Deposition (CVD), Physical Vapor Deposition (PVD), Dry Etch, Chemical Mechanical Planarization (CMP) Epi, Rapid Thermal Processing (RTP) and Ion Implantation. AMAT has also enter wafer defect and photomask defect inspection. AMAT holds roughly 25% wafer manufacturing equipment market share worldwide. Spares and Service account for the remaining 15-20% of sales. fred