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

To: Big Bucks who wrote (22098)	7/23/1998 10:01:00 PM
From: Proud_Infidel	Respond to of 70976

Recent Lehman AMAT report: Headline: Applied Materials: Update From Semicon '98 Author: Edward C. White, Jr., CFA 1(212)526-4744 Rating: 1 Company: AMAT Country: COM CUS Industry: SEMICO Ticker : AMAT Rank(Old): 1-Buy Rank(New): 1-Buy Price : $28 1/16 52wk Range: $54-26 Price Target (Old): $50 Today's Date : 07/14/98 Price Target (New): $50 Fiscal Year : OCT 10 Uncommon Values ------------------------------------------------------------------------------ EPS 1997 1998 1999 2000 QTR. Actual Old New Old New Old New 1st: 0.24A 0.52A 0.52A 0.17E 0.17E - -E - -E 2nd: 0.27A 0.37A 0.37A 0.33E 0.33E - -E - -E 3rd: 0.38A 0.15E 0.15E 0.62E 0.62E - -E - -E 4th: 0.49A 0.05E 0.05E 0.78E 0.78E - -E - -E ------------------------------------------------------------------------------ Year:$ 1.38A $ 1.09E $ 1.09E $ 1.90E $ 1.90E $ - -E $ - -E Street Est.: $ 1.30E $ 1.16E $ 1.45E $ 1.02E $ - -E $ - -E ------------------------------------------------------------------------------ Price (As of 7/13): $28 9/16 Revenue (1998): 4.4 Bil. Return On Equity (98): 15.6 % Proj. 5yr EPS Grth: 25.0 % Shares Outstanding: 379.2 Mil. Dividend Yield: N/A Mkt Capitalization: 10.83 Bil. P/E 1998; 1999 : 26.2 X; 15.0 X Current Book Value: $8.41 /sh Convertible: None Debt-to-Capital: 16.2 % Disclosure(s): C, A ------------------------------------------------------------------------------ * In keeping with the theme of Semicon West, most of Applied Materials' comments at its analyst meeting yesterday focused on technology and new product directions. * Management did note that the current business climate is the worst since the mid 1980's, and that a recovery may not occur until mid-to-late 1999. * The company will drive down costs, but did not provide specifics. However, we believe the $50 million per quarter 300mm program will be cut. * Applied announced equipment for two new film types, Black Diamond (for copper processing), and high-k dielectric (for 1-GB memories). * It is evident that Applied is leveraging the current downturn to extend its market position, as it did in 1980, 1985, 1991 and 1996. We recommend purchasing the shares. ------------------------------------------------------------------------------ Highlights: 1. Industry issues are more complex than in 1996. In 1996 the industry was beginning to go into a recession. There was more than 30% excess DRAM capacity, and excess personal computer channel inventory. But a 0.35- micron technology cycle was beginning, and Asian demand was strong. Today, Asian demand is weak, there is still a 10% excess of DRAM capacity, and the sub $1000 PC has adversely affected chip manufacturers. This state of affairs prompts Applied to call the current climate the worst since the mid 1980's downturn. 2. Applied's product positioning is better than it was in 1996. For in 1996, Applied had a weak 0.35 micron etch position, it was late with the newest CVD Technology, and its aside CMP system had reliability problems. Today, the company is arguably the leader in each of these areas. The improved product position gives Applied upside potential for 1999. (It's product positioning today is also far better than it was in 1985-1986). 3. New Directions. The move to 1GB memories and 1GHZ clock speed chips will require new semiconductor film materials that were not envisioned as recently as 1-2 years ago. These present large equipment market opportunity, with volume beginning in 1999. Among the important new ones mentioned at the meeting were: Black Diamond: This low-K dielectric film is ideal for use with copper to get high chip speeds at low cost. It runs on the new, high productivity producer platform. For 0.18 micron chips. Dry Fill: A novel technique using PVD and CVD to deposit copper, as a replacement to electroplating. Under development. Plug & Pattern: A radical technique involving the etching of copper, which none of Applied's competitors believes will work. Under development, for advanced chip. BST: A high K dielectric material for very advanced, 1 gigabit memory chips. 4. Geographic Analysis: Japan the situation is the worst here, due to the economy and uncertain status of the electronics industry. Asia Pacific weak, due to currency devaluations, slow economies, and lack of access to capital. But Taiwan is still relatively healthy, in spite of short-term spending cuts, due to the health of the foundry business model. North America Hurt by a slower PC market and competitive price pressures. Europe-Local companies close to plan. Little investment from outside. 5. The Best News Applied was frank in discussing the bleak near-term climate. It should get discounted quickly. Dram excess capacity trend was 11% in 1995, 30% in 1996, 25% in 1997, 11% in 1998, 4-9% in 1999 still an excess but getting better. There is very substantial room for cost reduction. BUSINESS DESCRIPTION: The world leader in semiconductor production equipment, with product offerings in CVD, etch, PVD, CMP, thermal, ion implant and wafer inspection/metrology systems, and related support. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.