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

To: michael97123 who wrote (36511)	8/10/2000 8:30:31 AM
From: michael97123	Read Replies (1) \| Respond to of 70976

Morningstar.com. - AMAT very positive article Full Steam Ahead for Applied Materials by Jeremy Lopez \| 07:47 PM \| 08-09-00 \| E-mail Article to a Friend Worries that the current chip cycle is reaching the beginning of the end are clearly overdone, if Applied Materials’ AMAT Wednesday evening earnings release was any indication of the health of chip-equipment industry. For many equipment makers, the reassuring quarter from Applied Materials was very timely. Fears that the current semiconductor cycle is already beginning to peak sparked a recent selloff in the shares of several chip-equipment giants, including Novellus NVLS, KLA-Tencor KLAC, and Applied Materials. But with reasonable evidence that industry fundamentals are still strong, and a pullback in the valuations of most chip-equipment stocks, long-term aggressive investors should be taking a good long look at such industry leaders. In many ways, Applied Materials delivered what the industry needed to hear. Both revenues and bookings were solid in the firm’s third fiscal quarter, and were in line with expectations. Sales increased 25% over the prior quarter, and earnings beat the $0.68 Wall Street estimate by two cents. Almost more important, however, was the firm's report that new orders increased 12% over the prior quarter. By reporting a number in line with expectations, Applied Materials provided evidence that the chip-equipment industry is still very healthy, despite the fact that the laws of large numbers could tame the firm's growth rate a bit in future quarters. One key metric that speaks to the industry’s health is the number of new fabs, or chip-manufacturing plants, that are scheduled to be built in the near future. As a result of these new planned fabs, demand for new chip equipment is strong in all major regions, and from all major chipmakers. In Japan, for example, demand is expected to continue to strengthen thanks to strong sales of consumer electronics such as DVD players and Sony’s SNE PlayStation2. In Taiwan, huge chip foundries, or firms such as Taiwan Semiconductor TSM that manufacture chips for other firms, can hardly keep up with demand. And back in the U.S., Texas Instruments TXN recently upped its capital-spending forecast despite the fear that expectations for wireless-handset growth could be too aggressive. Another huge trend likely to fuel growth is the semiconductor industry's transition to using 300-millimeter silicon wafers for making chips from the current 200-millimeter size that's the industry standard. A move to the larger-sized wafer yields more chips per wafer and can potentially save chipmakers boatloads once they get the fabs supplied with the new technology up and running. However, transitioning to a 300-millimeter manufacturing line is costly and very intricate, and was uneconomical for the industry until the recent surge in chip demand. Many major chipmakers have big plans to implement 300-millimeter technology in 2001, and Applied Materials appears to be positioned to dominate in this new area like the firm already does in its existing markets. Applied recently released a huge suite of tools for 300-millimeter chipmaking, and already has received a significant order for these types of products from Taiwan Semiconductor. Sales of these tools should help boost Applied Materials’ growth in 2001. Although there is a legitimate threat that all this buildout in semiconductor capacity could cause an industry-wide oversupply of chips -- thus causing pricing and margin deterioration -- there is little concrete evidence so far that this will happen anytime soon. Until good, hard evidence of a chip oversupply does arise, chip-equipment investors should sit back and enjoy the ride. news.morningstar.com