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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Shoibal Datta who wrote (575)	5/15/2001 11:52:27 AM
From: Return to Sender	Read Replies (1) \| Respond to of 95738

Weighing the Fed Against AMAT fool.com Applied Materials is the ultimate in capital equipment manufacturers: It produces the fabrication equipment semiconductor companies use to make their products. With interest rates coming down, the Fed is trying to goose companies into more capital spending. Applied's results for the next few quarters may tell us how they're doing. By Bill Mann (TMF Otter) May 15, 2001 What's more important today: This afternoon's meeting of the Federal Reserve Board, or Applied Materials' (Nasdaq: AMAT) earnings report, due out after today's market close? You said the Fed meeting, right? WRONG!!!! OK, I'm just kidding, you're right. But not by as much as you think. While the world frets about whether the Fed will cut interest rates by 25 or 50 basis points, consider this: At the market close today Applied Materials, a capital goods supplier if there ever was one, will report fiscal second-quarter earnings. So far the pundits are not hopeful. Applied has warned that its earnings would be perhaps 40% lower than they were a year before, a full 50% below last quarter's earnings of $0.66. This is reflective of the screeching halt Applied Material's customers put on capital spending as the economy hit the skids. Interest rate cuts are supposed to encourage both consumers and businesses to open up the pipeline and spend by making leverage -- in other words, debt -- cheaper. Great. But consumers are already leveraged to the hilt, with $5,700 in credit card debt for every man, woman, and child in the U.S. Businesses, meanwhile, are either in the same debt boat or still trying to figure out how to gain a return on their capital expenditures from the late 1990s. Borrow? For what? Now back to Applied Materials, whose quarter ended April 30. Applied Materials is the dominant producer of semiconductor fabrication equipment, tools used by Intel (Nasdaq: INTC), AMD (NYSE: AMD), Texas Instruments (NYSE: TXN) Taiwan Semiconductor (NYSE: TSM) and hundreds of other companies in the manufacturing of chips. (For more on this business, visit our InDepth: Computer Hardware page.) Applied Materials goes through violent cyclical rotations every few years or so, and this year has been no different -- except, perhaps, in the sharpness of the drop. However, investors should watch this earnings report (as well as the next two) from Applied to get a sense of whether some high-tech bellwethers are increasing spending. An increase in revenues by Applied over this time could be a leading indicator that some pretty crucial sectors of the economy are on the mend. So watch the Fed, but also recognize this: Until it makes sense for companies to invest money in themselves, they will not. Decreasing the interest rate to zero won't change that. When it does make sense to spend companies will do so, and one of the first beneficiaries will be Applied Materials. Bill Mann's columns are proudly sponsored by Fred's Croissants & Filldirt Co. At time of publishing, Bill held beneficial interest in Applied Materials. His stock holdings can be viewed online, as can the Motley Fool's disclosure policy.